We had noted last week that the positioning of FIIs appears to be at an extreme from where a reversal was possible. Thus, the push higher in Nifty as well as the rise in the long-short ratio of FII index future from 11.5 to 12.4 sits in line with expectations
However, the rise on the Index has been modest, as has the rise in the long-short ratio of FIIs. This is because, while the long contracts were boosted by 25.8% to 34,616 contracts over the week, shorts never saw a dip, but instead, saw a 15.4% rise to close at 2,44,728 contracts on Friday.
Friday also saw a cut in index future longs suggesting that FIIs are yet to look at the index with enough positivity to lift the momentum.
Metal Index shows early signs of near-term downtrend
The Nifty Metal index is beginning to exhibit noticeable signs of fatigue following its recent upward bounce, with a combination of technical indicators and derivative data pointing toward a renewed phase of downside risk.
Meanwhile, over 70% of Nifty 500 constituents were seen trading above their respective 10-day SMA by Friday’s close. Sectorally, the auto index was at one end of the spectrum with over 90% constituents trading above this key benchmark, while PSU bank index had only 25% constituents above the same.
Metal Index shows early signs of near-term downtrend
The Nifty Metal index is beginning to exhibit noticeable signs of fatigue following its recent upward bounce, with a combination of technical indicators and derivative data pointing toward a renewed phase of downside risk.
On the daily chart, the MACD indicator has generated a bearish signal crossover, highlighting a clear loss of upward momentum. This weakening trend is further supported by the formation of a bearish reversal candlestick, indicating that selling pressure is gradually emerging at elevated levels.
From a pattern perspective, the index appears to be turning lower after facing resistance near the upper boundary of a weekly rising wedge. Typically, such formations tend to resolve on the downside once prices are rejected at resistance. The index’s failure to sustain above this critical zone increases the likelihood of a corrective phase unfolding in the near-term.
Derivative data further strengthens the bearish outlook. Around 50% of stock futures saw fresh short additions both on Friday and on a week-on-week basis, suggesting the buildup of new bearish positions rather than simple profit booking. In the options segment, nearly 80% of near out-of-the-money (OTM) call strikes recorded short additions, while about 45% of in-the-money (ITM) calls also saw similar activity, reflecting expectations of continued downside.
Overall, the setup indicates a weak undertone for the index, with any short-term rallies likely to attract selling pressure. Immediate support levels are expected around 12,850 and 12,650, which should act as near-term cushions until momentum shows signs of decisive stabilisation.
PSU Bank Index faces continued downside risk
The Nifty PSU Bank index continues to reflect a fragile and weakening structure, supported by both technical signals and derivative positioning that point toward further downside risk.
Price action has softened after the index failed to hold higher levels, indicating a loss of bullish momentum. Additionally, persistent weakness in SBI, a key heavyweight in the index, is adding to the overall drag and reinforcing sector-level vulnerability.
From a derivatives standpoint, the data clearly indicates a strong bearish bias. All PSU Bank index stock futures witnessed short additions on Friday as well as on a week-on-week basis, signalling fresh bearish builds rather than mere unwinding of long positions. This highlights increasing conviction among market participants regarding further downside potential.
In the options market, nearly 85% of near OTM put strikes saw long buildup, suggesting increased hedging or bearish bets. At the same time, ITM call strikes recorded short additions, indicating expectations of limited upside and a potential cap on any recovery.
Technically, the index has closed close to the 61.8% Fibonacci retracement level of the rally seen between the April lows and May highs. While this level may provide temporary support and could lead to a brief pullback toward the 8,455 zone early in the week, such rebounds are likely to be short-lived and sold into. A decisive close below 8,325 could intensify selling pressure and trigger a deeper correction in the sessions ahead.
First published in The Financial Express.