Ashwin Ramani, Derivatives Analyst at SAMCO Securities
The National Stock Exchange (NSE) benchmark, Nifty, began the June series with a bang and ended with a gain of 178.20 points to settle at 18,499.35. Nifty gave a higher close on both the daily and weekly charts on Friday. It is now 2.10 percent away from its all-time high of 18,887.60 made on December 1, 2022.
The volatility cooling off, Put-Call Ratio (PCR) rising from the lows, increasing foreign institutional investor (FII) Long Short Ratio trend, and the build-up of long positions in May expiry with both Open Interest (OI) and price, all indicate that the uptrend in the Nifty is intact and the overall sentiment is positive. Any correction will serve as a good opportunity to buy.
The India VIX, also known as the fear index, cooled for the second consecutive day, providing major comfort to the bulls on the first day of the June month series. Short-covering was observed in the Future OI data on Friday as Nifty overcame its 18,400 resistance to close at 18,499.35.
An indication of this effect was given by the trading pattern witnessed in the May series itself. Nifty started the May series with an OI of 89.62 lakh shares, and ended with 92.30 lakh shares, thereby rising by 3 percent. It also saw a significantly higher rollover (70.61 percent) with a higher cost of carry (+0.57 percent) compared to the last month’s expiry rollover of 64.11 percent and its three-month average of 69.98 percent, indicating long positions being carried forward to the next expiry.
The Nifty rose 2.27 percent during the May month expiry, moving from 17,915 on April 27 to 18,321 on May 25. The index oscillated between 18,200 and 18,400 levels during this period, with both zones proving to be strong support and resistance levels, respectively.
The India VIX rose 9.58 percent during the May series, moving from 11.42 to 12.50 levels, thereby keeping up the pressure on the bulls. The India VIX usually has an inverse correlation with Nifty. When VIX goes up, Nifty goes down, and vice versa. Nifty fell nearly 400 points during the May 16-19 period, when volatility had risen almost 16 percent since the start of expiry.
Volatility started to cool from May 18 onwards and Nifty resumed its uptrend to close at 18,321 from the lows of 18,060 on May 19.
The FII Long-Short Ratio, a sentiment indicator, on the other hand, moved in the range of 41.26 percent and 57.55 percent during the May series. From May 3 until May 24, it was moving in the 45-50 percent zone, which correlated with the sideways movement in Nifty during the same period.
FIIs were seen steadily increasing their short exposure until the penultimate day of the May series expiry. On the expiry day of the May series, the ratio jumped to 57.55 percent from the previous day’s 49.12 percent on massive short-covering, which led to Nifty recovering in the last hour of the day.
The PCR is another popular derivative indicator designed to help traders gauge the overall mood of the market. The PCR fell to 0.97 from 1.22, indicating pressure from Call writers at higher levels. This was quite evident from the price chart where 18,400 proved to be a strong resistance and Nifty failed to give a strong close above this level on three occasions during the May series.
The PCR also fell below 1 for the first time since April 21, 2023, on May 18. It made a low of 0.853 on May 19, when Nifty closed at 18,203. This was also the day when Nifty tested and bounced off the 20-day exponential moving average (EMA) on the daily chart.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
