FIIs have reduced the index future longs exposure to just 22% of their index future portfolio. In absolute terms, the long build up is significantly lower than what was prevailing in early April and mid August, the last two occasions when Nifty sniffed at 18k vicinity and turned lower. In other words, as we approach the 18k mark again, there is significantly lower fear of long liquidation pressure from FIIs. Infact, it is the retail segment that is long heavy, having accumulated 72.9% of the longs. This concentration is less likely to lead to a cascading event in Nifty though. This helps to negate the feeling of fear that has kept Nifty indecisive, especially having approached overbought situations.
Additionally, Bank Nifty has begun to show much more upward mobility than Nifty. Its present upmove, which is the third such attempt since markets came off the 2021 peaks, has returned 26% in the span of 84 days, putting the last two attempts to shade. Further, the present move is replete with bullish continuation patterns, adding credence to the expectation that this run could get extended much beyond the record peak. Nifty Midcap100 index has broken out of the flag pattern on weekly time frame alongside a psar breakout in the monthly charts painting a positive outlook for the index in the medium term. Even though we expect big moves, a bit of caution is likely to prevail as the weekly RSI is suggesting that overbought region is in the vicinity.
Last Friday’s rejection trades on approach to 17900 revives collapse fears, having fallen about 4.5%, the last time Nifty rose above 17900, on 19 August. But the main difference this time is that last Friday’s dip was accompanied by decline in VIX, as opposed to a rise in VIX on 19th August. This encourages us to look for 18160-18600 in the near term, with the downside marker pushed up towards 17700. Alternatively, inability to float above 17700, will negate our bullish bias, and revisit chances of 17000-16650, should 17450 give away as well. This, though is a low probability scenario, despite the event risks lined up ahead in the next fortnight.
First published in Financial Express.