Tariff tantrums to restrict rebound; volatility to rule shortened week

Last week, the breach of the crucial psychological level of 24,500 rattled sentiment, converting it from a “make-or-break” level into a fresh supply zone. It was a news-heavy week, with the monetary policy stance remaining neutral but trade tariff developments dealing a heavier blow. Every intraday uptick turned into a bull trap as sellers aggressively added positions at higher levels. Price action signals a heightened risk of further downside, with the increased probability for a test of the 200-day EMA near 24,200 in the coming week.

Currently, the index is trading at its lowest levels in over eight weeks, confirming a sustained breakdown below 24,500 and trapping late long entrants. With support now flipped into resistance, overhead barriers continue to move lower, keeping the structure technically fragile. A decisive break below Friday’s low could accelerate selling pressure toward the 24,200–24,150 zone, which coincides with the 200-DEMA and an unfilled price gap. The index also slipped beneath its 100-DEMA at 24,590, further raising the bar for any meaningful recovery. Unless Nifty decisively reclaims 24,600, rebounds are likely to invite fresh shorting. Adding to the caution, the RSI has fallen below 40 and breached prior lows, a clear indication of strengthening bearish momentum.

Open Interest (OI) Trends

Nifty Futures OI rose marginally from 1.69 crore at the start of the week to 1.72 crore shares, an increase of 3.54 lakh. This mild rise in OI, coupled with a 0.82% decline in price, points to short build-up as sellers quietly increased exposure. The move was evident in the final session, where buyers were caught off guard by a sharp drop from a major support level, hinting at heightened volatility ahead.

FPI Activity

Foreign Portfolio Investors (FPIs) remained firmly bearish, showing no inclination to cover shorts through the week despite short positions exceeding 92%. The FPI long-short ratio hovered in the narrow band of 8–8.60%, signalling no second thoughts on unwinding bearish bets. FPIs continued to emerge as net sellers, adding to short positions and keeping the broader downtrend intact. This pattern points to a persistent bearish bias, even with the long-short ratio in oversold territory for the past four weeks, no reversal signs have emerged. Minor pullbacks, if any, may be better utilised to initiate fresh short positions, keeping the “sell-on-rise” strategy relevant.

Options Data Insights

Derivatives positioning mirrors the technical weakness, with aggressive Call writing consistently outpacing Put positions. The 24,500 strike has attracted heavy Call writing, with open interest swelling to 1,47,414 contracts, making it a formidable resistance. On the downside, the 24,000 strike holds the highest Put OI at 75,920 contracts, serving as immediate support. However, Put writers have been unwinding positions and rolling to lower strikes, while Call writers have built significant exposure near at-the-money levels, reflecting persistent caution. The Put-Call Ratio (PCR) tumbled to 0.48, underlining a strong bearish stance. That said, given the oversold setup, a short-lived technical pullback cannot be ruled out.

Outlook for the Week Ahead

Market Participants is sending a clear message: bears are not ready to loosen their grip. With Nifty logging its sixth straight weekly loss, the broader structure has turned decisively weak. The index continues lower tops and bottoms, trading below key moving averages (20, 50, and 100-day EMA), keeping the trend pointed downward. Adding to the caution, the index has now closed below its 20-week EMA, amplifying downside risks.

Immediate support lies near 24,300, where some Put writing still provides a tentative floor. On the upside, the 24,500–24,600 zone is layered with resistance and dense Call OI. Only a decisive move above 24,600 can trigger meaningful short-covering. Failing that, a break below 24,300 could invite aggressive short build-up, dragging the index toward 24,200–24,100 in the coming week.

With short positions on the rise and FPIs doubling down on bearish bets, volatility could remain elevated. While oversold readings may spark brief recoveries, structural weakness suggests such rallies may turn into bull traps. In the current setup, maintaining a ‘sell-on-rise’ approach appears prudent, with the index likely to test the 24,200–24,100 zone in the near term.

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