By Anand James
Nifty is on the verge of a sizeable breakout move having remained in the near vicinity of 200-day SMA for 13 days now. During this period, the upper range has been limited to 2.5% and downsides limited to about a percent. This volatility was hardly surprising, as all this while, VIX has been in the 22 to 19 band. However, a sharp fall in VIX last Friday, to 18 levels encourages us to assume that bulls are more emboldened to take prices higher this week, at atleast 17428, the recent peak initially. Incidentally, VIX also closed at the day’s low on Friday, despite Nifty erasing nearly 1 percent from the day’s high.
We assume that Friday’s sharp pullback is a result of the abrupt push beyond 2sd from 14-day SMA. This had obviously attracted long liquidation, but we would like to pin our hopes on continuation of upsides should the early pullback not extend beyond 17070, the 14-day SMA. However, this is the 2nd time in 7 days that a breach of super trend failed to sustain. This amply illustrates the underlying weakness, but we would entertain thoughts of 16400-300 only if VIX reclaims 20 again.
Greenshoots were also visible across sectors despite the profit booking across the board in the second half of Friday. Yet, even among the sectors like energy, which was among the ones which lost the most, stocks look to have only wiped off previous day’s gains, and have held the breakout level. Among the NSE 500 stocks, nearly 28% of the stocks are above the 20D MA, as against 25.1% stocks above this key MA on the previous day, suggesting that stocks have held more strongly than one would be led to believe after the strong sell-off post a gapped up opening on Friday.
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For now, given the depressing trading ranges prevailing recently, the OI accumulation has not extended much to far OTM calls. Friday witnessed long addition in the 17200 to 17500 call strikes in Nifty, while 17600 through 18000 witnessed call shorts. But, at the same time, PEs have not found long interest in OTMs either, and infact most strikes found short build. Incidentally, 17000 saw long unwinding from PEs, while 16500 and 16000 strikes, the most active strikes after 17000 found short build up. All these suggest that Nifty is not positioned for a major fall, despite the large bearish overhang visible during the last fortnight. This encourages us to take a cautiously positive stance with eyes on VIX as well as key MAs.
(Anand James, Chief Market Strategist at Geojit Financial Services, Views expressed are the author’s own.)