FIIs still stubborn with their index future shorts
FIIs have been holding at least 80% of their index future positions as shorts since late December. That volatility has been benign, with VIX under 16. This has been giving hopes of onset of recovery swings. But the persistence with which FIIs have held on to the shorts suggest that more declines are in store or a vastly substantial upswing is required before the shorts see liquidation. We fear that the latter is more likely. Incidentally, Friday closed with FIIs still holding 84.3% of their index future positions as shorts.
Time for a proper break down?
We had gone into last week with expectation of seeing new trading ranges, but stopped just short of preparing for a full blown out downside move with half expectation of a swing higher even. As it turned out, while the swing higher never materialised properly, as all such attempts were met with larger declines. This is in fact classic to bear markets and we are now almost 600 points below where last Friday’s close, on the Nifty 50.
Though 22,800 stepped in to avert a collapse, yet again, prompting a pull back towards Friday’s close, it ended without providing enough signals towards an outright turn higher.
Also, we feel, that VIX is potentially on the way up, an indication that 22,800 is very likely to give away, despite a hopeful finish to the week. So far, the decline from September peak along with an interim pull back ending precisely at the 50day SMA, fit perfectly within the downside leaning channel, projecting 21,800-21,300 as the break down target.
Opening trades next week will take cues from the fight back of the closing hour of Friday, as well as oscillator divergences in short term periodicities, but it would require a push beyond the 23,000-23,300 band to avert an imminent drop.
That said, Bank Nifty appears less eager to break down, and a slippage past 48,200 could change the bias. However, it would require a push beyond 49,600 to bet on upsides with more confidence.
Sectoral Ideas
Nifty Realty index has been witnessing a pull back since it broke below 930 and this week it has broken below the 38.2% Fibonacci retracement level (Mar 2023 low and Jul 2024 high) of 859. It is now on the way towards 767 (50% Fibo level). The average RSI of major constituents is around 36 which points towards two facts.
First, that there will be some more downside in the short term.
And second, that the reversal zone is fast approaching.
Stocks like DLF, Macrotech Developers, Godrej Properties, Oberoi realty and Prestige Estates have more room on the downside. But keep in mind that support zones might kick in soon.
Nifty Oil & Gas Index has been on a major slide since September 2024. It has corrected towards the 61.8% Fibonacci levels of October 2023 low and September 2024 high hinting at the fact that we might see reversal in the index very soon. Reliance looks to be gearing up to lead the pull back.
Nifty IT has broken below the rising trend channel support of 42,035 and looks to be heading towards 40,285 and 39,150 levels. Short term momentum indicators are looking weak favouring more declines in the near term. Expect Infosys, HCL Tech and Wipro to add to the negativity.
First published in Financial Express
