With closing near 27 on two days last week, fear is rising. VIX, on a closing basis, is at its highest since February 2022, during the breakout of the Russia-Ukraine war. Clearly, we are moving to extremes and calls for an expectation of a large price range and price swings. At 3,41,437 contracts, Foreign Institutional Investor (FII) index future shorts have risen above the highest recorded last year in February.
Friday’s rise in shorts accompanied a broader market fall ahead of Nifty 50 rebalancing. But interestingly, FIIs’ index future longs were also boosted by 26.85% to 61,970 contracts. This is counterintuitive and comes against the run of the play, suggesting that fear may be peaking and at least some section of traders are positioning for a swing higher.
Bullish consolidation in Pharma
The Nifty Pharma Index is showing notable improvement in its price structure and underlying strength following an extended phase of consolidation, signalling a constructive and positive bias for the upcoming sessions.
The index continues to hold firmly above the crucial 22,300-22,400 support zone, which coincides with important pivot support levels and a series of recent higher lows. This behaviour suggests steady accumulation of declines rather than aggressive selling pressure.
Overall price action indicates a gradual shift from earlier distribution into a stable consolidation phase, with the index now sustaining above its short-term moving averages, reinforcing the improving setup.
Momentum indicators are also turning increasingly supportive. The RSI is hovering around the 50 level and attempting a gradual upward move, reflecting a shift from neutral to positive momentum.
At the same time, the MACD is displaying early signs of base formation, pointing toward strengthening momentum and a potential trend revival. A decisive and sustained breakout above the 22,800–23,000 resistance band could open the door for an upside move towards 23,500 and higher levels in the near term.
From a derivatives perspective, the setup looks encouraging. Nearly 92% of stock futures in the Pharma space witnessed short covering on Friday, suggesting that traders are repositioning themselves in anticipation of further upside in the coming week.
Additionally, heavyweights such as Sun Pharmaceutical Industries, Cipla, Divi’s Laboratories, Dr Reddy Laboratories, Torrent Pharmaceuticals, and Mankind Pharma have formed reversal candles on the charts, indicating near-term positivity and positioning them as potential leaders for the index’s next leg higher.
Oversold conditions in Financial Services
The Nifty Financial Services Index is beginning to show early signs of a potential reversal after undergoing a sharp corrective phase, with momentum indicators slipping into deeply oversold territory.
Recent price action suggests that selling pressure is gradually losing momentum, and the index is attempting to stabilise near key trendline supports and important price zones. This behaviour points more towards downside exhaustion rather than the start of another decisive breakdown.
Oscillators remain stretched on the downside but are now flattening out, a technical pattern that often precedes a short-term rebound or relief rally. From a derivatives standpoint, although a majority of stock futures witnessed long unwinding on Friday as well as on a week-on-week basis, approximately 20% of stocks saw the OI PCR slipping below 0.5.
This reflects an emerging oversold condition and increases the probability of short-covering, as bearish positions appear to have become relatively crowded at current levels.
Looking at index heavyweights, particularly private sector banks such as HDFC Bank, ICICI Bank, and Kotak Mahindra Bank, along with the Bajaj twins, most are deeply oversold and are showing early technical signs of stabilisation and reversal. These stocks could provide meaningful support to the index if a rebound unfolds.
On a successful recovery, the index could initially move towards the 25,200-25,500 zone, followed by an extension towards 26,000. On the downside, immediate and critical support is placed near the 24,000 to 23,800 range.
First published in Financial Express.
