Markets to continue to trade with negative bias

Nifty has corrected sharply in the last couple of weeks led by weakness in the global markets. The index registered high around 18100 and has now sneaked below the 17000 mark. The correction has been mainly led by the Banking and Financial space as we witnessed a combination of long unwinding as well as short covering in the bank Nifty index. 

If we look at the derivatives data, the rollovers during last week in Nifty were at 78 percent while that in Bank Nifty was at 82 percent which was in line with its 3-month average. However, the stronger hands (FIIs) rolled over most of their short positions from September to October. Also, they have been selling in the cash segment post the recent Fed rate hike which resulted in a rise in the Dollar Index and a sharp depreciation in the INR. We have seen in the past as well that whenever FIIs have sold equities in the cash segment and have been net sellers in the derivatives segment as well, it has been catastrophic for our markets. Currently, the ‘Long Short Ratio’ of FII’s in the index futures segment is at 13 percent, with a significantly high quantum of positions on the short side. This certainly does not bode well for the markets and hence, traders should keep a close tab on changes in this data. On the other hand, the Clients section has been trading with a positive bias and has 67 percent positions on the long side.

Now if we look at the options data, 17000-17200 call option strikes have seen decent open interest build up in this weekly series indicating the resistance zone in the near term. On the flip side, the 16500 put option has decent open interest amongst puts which could be seen as immediate support. Looking at the data, we expect the market to continue to trade with a negative bias and could approach the 16500 mark hence, traders should trade cautiously. Around 16500, one should then look to book profits on the short positions and look to take contra buys if any changes are seen in the data around the support area.