What is open interest and PCR data indicating?
Before we go to what is Open Interest and PCR data indicating, let us first understand what is Open Interest and Put Call ratio (PCR)? Open interest is the total number of outstanding contracts that are held by market participants at the end of each day.
If both parties to the trade are initiating a new position (one new buyer and one new seller), open interest will increase by one contract. If both traders are closing an existing or old position (one old buyer and one old seller), open interest will decline by one contract. If one old trader sells his position to a new buyer, open interest will not change.
PCR measures the ratio of the put open interest on a given day to the call option open interest on the same day. Thus PCR (OI) = Put open interest on a given day / Call open interest on a given day. Though rise in the Put Call ratio, indicates more open Interest in puts than calls which is considered bearish, actually it is not. It is a contrarian Indicator as rise in the PCR is considered bullish because smart people are option sellers and If they are selling more puts they expect the market to move up/not to fall from the current levels.
Now coming to the open Interest data, Nifty Future's Open Interest has risen by 8 percent during the October series till now with Nifty has risen 4 percent during the series which Indicates long build up, a bullish sign for the Nifty.
Nifty Open Interest Put call ratio has risen to 1.53 levels from 1.30 levels last week. This rise in the Put Call ratio is largely on the back of Put writing 18,000-18,100 levels which Indicates that 18,000 level to act as a strong support going forward. On the higher side 18,500-18,600 level to act as an immediate resistance where we have seen call writing. Any close above 18600 level would result in further short covering which might push Nifty to even 18800 levels.
What is FII futures & options data indicating?
FIIs created fresh longs in the Index futures segment during the week where they net bought worth Rs 2,706 crore with their Open Interest going up by 21,913 contracts. FIIs long to short ratio in the Index Futures segment has moved up to 2.07 levels from 1.43 levels. In other words, out of their total positions in the Index Futures segment, 68 percent is on the long side. This augurs well for the markets.
In the index Option segment also, during the last five trading sessions, they net bought 23,432 contracts of Index calls and shorted 31,000 contracts of Puts Indicating they have created long positions in the Index Option segment also by buying Calls and selling Puts.
What is your reading on weekly expiry?
Nifty continued its upward journey for the second week in a row to end the week and weekly expiry at yet another new all-time high levels. Nifty closed in green in eight out of the last ten weeks, indicating the market is in strong upside momentum.
Intermediate uptrend remains bullish as Nifty continues to make higher tops and higher bottoms over the last several months. Nifty has been trading above the rising 20- and 50-day EMA, which gives further evidence of an uptrend.
What are levels to watch next week?
We are expecting upside momentum to continue for the Nifty and Bank Nifty. Immediate targets for the Nifty are seen at 18,500-18,600 levels followed by 18,800. In the Bank Nifty Immediate target is seen at 40,000 levels, followed by 40,800. Longs should be protected with trailing stop-loss of 18,000 in Nifty and 38,500 in the Bank Nifty.
What are the stocks to watch out for?
Amongst the sector, traders should focus on Banking/Finance, NBFCs and Metal sector for higher returns. Amongst the F&O stocks, Adani Port, Axis Bank, Canara Bank, ICICI Bank, Havells, JSW steel, PFC and REC are looking good for the next few sessions. Traders are advised to keep those stocks on radar for the long side with appropriate stop-loss.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.