Negative buildup in options, weak momentum can trigger deeper correction in August
Momentum has also turned relatively weak over the last few trading sessions after sustaining in positive territory for most of the July series.
July 31, 2020 / 12:04 PM IST
July series has been quite rewarding for traders. Initial breakout was seen at 10,400 which propelled the index higher towards 11,300 levels. Finally, Nifty50 closed around 11,100-mark for the series with gains for nearly 8 percent. Most of the sectors participated in the first half of the series followed by shift towards selective participation in the second half. IT, Auto, Metals and Pharma stocks performed well while Banking failed to sustain momentum.
As we enter the August series, the general risk-reward proposition for most of the stocks from the broader universe is negatively skewed. This is a strong inkling that an impending round of profit booking or a consolidation phase could be ahead. Momentum has also turned relatively weak over the last few trading sessions after sustaining in positive territory for most of the July series. A negative buildup on options data front along with further deterioration in momentum parameters can trigger a deeper correction.
Market wide rollover was seen at 91 percent. Nifty rollover was seen at 78 percent as compared to 3-month average of 75 percent. Nifty options concentration was seen at 11,000 Put and 11,500 Call options. Since we have witnessed a strong rally in the recent past and the previous breakout support level seen only at 10,250; some correction or consolidation for new support being defined is expected. FII segment started the series with net long positions while PRO segment remained neutral. On the index options front both segments are negatively biased.
Commodities and Banking stocks have witnessed strong rollover; Metal and IT stocks have witnessed strong rollover along with strong momentum. Infra and Energy stocks have witnessed weak rollover and a strong drop in momentum.
The author is Head of Research - Derivatives at Kotak Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.