“FII’s index futures long positions are at the lowest in five years, since March 2023. This suggests that we are approaching a peak pain, reversals indicated by this metric usually take a while to reflect on the indices,” he says.
Edited excerpts from a chat:
How do you read Thursday’s monthly expiry day moves? Fundamentally, nothing much changed during the day but the index started the day in the red, went into the green zone but ended again in the red? Do you think chances are the index is being manipulated even after the Jane Street scandal broke out and Thursday was an example of it?
Risk appetite improved after 37% of Nifty 500 stocks slipped below lower bollinger band on Thursday, thanks to a downside gaped open, encouraging traders to go for bargain hunting, lifting stocks initially. However, the frenzy could not sustain, as rejection trades resurfaced as soon as Nifty approached the 10-day SMA of 24,936. This turn of events fits well within a bear market construct, and was probably aggravated by derivatives expiry as well. All of this culminated in pushing the index options volume to 39.88 crore, the highest on monthly expiry days, this year so far since January.
What does the rollover and FII long-short data tell you about the outlook for the August series?
In July, the Nifty rollover rate was 75.71%, falling just short of its three-month average of 78.311%. Bank Nifty, on the other hand, recorded a rollover of 77.98%, up from 75.75% in June. Further, only 23.83% of stock futures closed with gains during the month, a steep decline from the 60% seen in June. Lower roll cost for both Nifty and Nifty Bank suggest that traders are positioned towards a less optimistic August. FII’s index futures long positions are meanwhile at the lowest in five years, since March 2023. This suggests that we are approaching a peak pain, reversals indicated by this metric usually take a while to reflect on the indices.
Nifty Bank fell around 1.6% in the week. How would you go about trading the index in the month ahead?
Historically, August has tended to be a weak month for BankNifty, with the index declining an average 6% in 53% of the instances over the past 15 years. The index has breached the support of its ascending wedge pattern on the weekly chart, signaling a potential shift in trend. This breakdown is further validated by the weekly MACD crossing below the signal line, suggesting growing bearish momentum. On the daily timeframe, the index has slipped below the Supertrend level of 55,766, reinforcing the prevailing weakness. Additionally, the average RSI of the index constituents’ hovers around 40, indicating that there is still room for further downside before reaching oversold territory.
From a derivatives standpoint, the sentiment remains bearish. Approximately 90% of both near ITM and OTM call options have witnessed short build-up, reflecting a lack of bullish conviction. Moreover, over 90% of BankNifty stock futures saw short additions on Friday, with around 80% showing week-on-week short build-up. Looking at individual constituents, stocks such as ICICI Bank, SBI, Axis Bank, PNB, and Bank of Baroda appear particularly vulnerable and may continue to drag the index lower. Based on current technical and derivative signals, the index could potentially decline towards the 55,400 and 54,600 levels in the coming sessions.
PNB Housing Finance shares fell 18% on Friday on CEO resignation. Do you see some bottom-fishing opportunities on the charts?
A deep downside gapped opening followed by persistent selling that culminated in a marubozu candle stick pattern is suggestive towards more downsides. However, deeply oversold RSI may allow for a bounce and sideways movement in the vicinity of 831-888, followed by another leg down. Supports deep down are seen at 723 and 605.
Give us your top ideas of the week.
DELHIVERY (LTP: 430)
View – Buy
Target – 455
SL – 424
After a brief period of decline, the stock has successfully broken above its falling trendline resistance on Friday, supported by signs of MACD histogram exhaustion—indicating a possible trend reversal. On the monthly chart, the stock is also attempting to move above the Supertrend level carried over from the previous month, further strengthening the bullish outlook.
Given these technical developments, we maintain a positive view on the stock with a near-term target of 455. To manage risk, all long positions should be safeguarded with a stop-loss placed just below the 424 level.
ITDCEM (LTP: 792)
View – Buy
Target – 845/880
SL – 752
The stock remained under pressure for most of July but began showing signs of a potential reversal in the final week, with momentum gradually picking up. MACD histograms have started to flatten at lower levels, indicating exhaustion in selling pressure and suggesting that bulls may be preparing to regain control.
On the technical front, the 14-day RSI has crossed above its moving average, signaling improving strength. Additionally, the formation of a large Doji candle on the weekly chart points to a possible base-building phase.
Given these developments, we anticipate the stock to move towards the 845–880 range in the near term. To manage risk, long positions should be protected with a stop-loss placed below 752.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
