Nifty 50 and Nifty Bank surged 8.6 per cent and 8 per cent last week, marking their biggest weekly gains in recent years. F&O data showed a sharp shift as investors reduced short positions. Bulls roared back as indices broke resistance levels, suggesting that the market sentiment has improved significantly now.
Nifty 50 (25,030) and Nifty Bank (59,086) staged a strong recovery last week, surging 8.6 per cent and 8 per cent respectively. Both indices recorded their biggest weekly gains in the recent years, signalling a sharp improvement in market sentiment.
The futures and options (F&O) data supports the positive momentum. Nifty futures witnessed considerable short covering, while options positioning turned increasingly bullish.
Foreign institutional investors (FIIs) reduced their net short positions in index futures by 58 per cent to 1 lakh contracts. Their net short positions in index calls, too, declined 47 per cent to 1.28 lakh contracts. However, net long positions in index puts fell 13 per cent to 4.5 lakh contracts, indicating a moderation in bearish bets.
Retail traders reduced their net long positions in index futures by 55 per cent to 83,781 contracts. Meanwhile, their marginal net short positions in index calls turned into net longs of 11,394 contracts.
Overall, derivatives positioning and charts indicate a decisive shift in favour of the bulls. Both indices have broken above important resistance levels, strengthening the prospects of further gains.
Nifty 50
Nifty (Nov) futures (25,032) surged 8.4 per cent last week. During this period, the outstanding open interest (OI) of this contract dropped from 156.6 lakh contracts to 120.9 lakh contracts, indicating considerable short covering. This suggests that bearish participants have substantially reduced their exposure following the sharp rally.
Meanwhile, December futures gained 8.3 per cent, with its OI increasing 20 per cent to 14.8 lakh contracts, suggesting fresh long build-up.
In options, the Put Call Ratio (PCR) of November contracts increased from 1.2 to 1.3, while that of December options rose from 1.1 to 1.4. This indicates relatively higher put writing across both expiries, reflecting bullish expectations for the current and next series.
Overall, the F&O positioning shows that participants are increasingly placing bullish bets, strengthening the prospects of further gains.
Supporting this, the chart of Nifty (Nov) futures shows that the contract has decisively surpassed the key resistance at 25,000, opening the door for further gains. The next notable hurdles are at 25,300 and 25,700.
However, the rally may not continue uninterrupted. Given the sharp rise last week, a corrective decline remains possible. Such a move could drag Nifty futures to 24,800 or even 24,500. These levels could attract fresh buying interest.
Nevertheless, we expect the contract to eventually resume its uptrend and reach 25,700 before the November expiry.
On the other hand, a breakdown below 24,500 could weaken the bullish momentum and trigger a deeper correction towards the 24,200-24,000 support band. However, this appears less likely at present, given the strong momentum favouring the bulls.
Nifty Bank
Nifty Bank (Nov) futures (58,979) rallied 7.6 per cent last week. Similar to Nifty futures, the outstanding open interest (OI) of Nifty Bank futures declined 3 per cent to 21.8 lakh contracts, indicating short covering.
Meanwhile, December futures gained 7.5 per cent, with its OI increasing 14 per cent to 1.6 lakh contracts, suggesting fresh long build-up.
The Put Call Ratio (PCR) of November options increased from 0.95 to 1.25, while that of December contracts improved marginally from 1.10 to 1.14. This indicates relatively higher put writing, reflecting bullish expectations among options traders.
Overall, the derivatives data suggests that participants anticipate further gains in the coming sessions.
The chart of Nifty Bank (Nov) futures also supports the positive outlook. The contract has surpassed several important resistance levels and formed a higher high, signalling strengthening bullish momentum.
From the current level of 58,979, November futures can advance to the 61,000-61,300 resistance band. A decisive breakout above 61,300 can extend the rally to 61,800-62,000.
However, the contract could witness a temporary correction before resuming the uptrend. Such a decline might drag it to 58,000 or even 57,000. Nevertheless, the broader outlook remains bullish, and any correction is likely to be short-lived.
Only a decisive breakdown below 57,000 can weaken the bullish outlook, potentially triggering a deeper decline towards the 55,600-56,000 support band.