Unlike previous weeks, Foreign Institutional Investors (FIIs) appeared more positively biased, as evident from their index futures positioning. Though the 15% hike in longs on Friday was definitely a boost to upside views, index future longs were seen being raised through the week, marking a 54% jump in long contracts on a week-on-week basis.
This trend was not as evident among shorts, though, as there was a mid-week hike in short positions. This resulted in the week ending with just a 3% decline in short positions, despite a 6% reduction in shorts on Friday.
Also, despite the large jump in FII index long positions, in absolute terms, the long contracts are still just 39,971 contracts, just a minuscule when compared to the massive 28,3594 short contracts. Not surprisingly, the long-short ratio has only swung back from an extreme position, and at 12.4, there is no clear indication that a short covering spree is underway.
Meanwhile, thanks to last Friday’s breakout move, the majority of the key Nifty sectors have pushed above their respective 10-day SMA. Energy, metal, oil & gas, and, of course, IT continue to lag behind.
With these in the background, we have discussed two sector themes.
Nifty Energy: Early stabilisation signals near crucial support
The Nifty Energy Index is beginning to exhibit initial signs of stabilisation following its recent corrective phase. Price action has formed a long-legged Doji candle around current levels, highlighting market indecision and suggesting a possible exhaustion of selling pressure. Such a candlestick pattern, especially when it appears close to a significant support zone, often indicates that buyers are gradually stepping in to absorb supply.
From a momentum perspective, the MACD histogram is steadily contracting, reflecting a clear slowdown in bearish momentum. This moderation in downside pressure increases the probability of a near-term rebound or reversal.
At present, the index is trading just above a key support level of 38,700, which remains critical for maintaining a recovery bias. As long as this support is defended, the chances of an upward move improve considerably. A short-term relief rally could potentially push the index towards the 39,800 level, which now acts as an immediate resistance zone.
However, any decisive breakdown below 38,700 could invalidate the bullish setup and open the door for further downside. Overall, the combination of a reversal candlestick pattern and diminishing bearish momentum supports a cautiously optimistic view, pointing toward the potential for a gradual upward move in the near term.
Nifty Metal: Rebound taking shape from strong support area
The Nifty Metal Index is showing encouraging signs of a technical rebound after retracing into a key support zone. The emergence of a Morning Star candlestick pattern near a well-defined horizontal support level signals a potential shift in sentiment from bearish to bullish. This classic reversal formation suggests that buying interest is returning after the recent decline, helping establish a base for a near-term recovery.
Supporting this view, the MACD histogram continues to contract, indicating a steady easing of bearish momentum and raising the possibility of an upcoming bullish crossover. This improvement in momentum adds confidence to the emerging rebound structure.
As long as the index remains above the crucial support level of 12,600, the overall setup stays constructive for further upside. In the near term, the index could witness a recovery towards the 13,150-13,200 zone, which may act as the next resistance band.
First published in Financial Express.
