There is not too much of a build up on the short side for the Nifty Futures, which indicates that you might see a bit of a mix and match kind of a price action, says the independent market expert Kunal Bothra.
Even though we closed the week a little soft, it was a record-making week. What is your analysis of the trend going forward?
The start of the week was quite promising. We had a touch and go moment towards 50,000 in the mid of the week. But we cannot say that was a happy ending for the week. On Friday, we saw it was a shake off for the indices. Many of the market participants who were just rigidly bullish were expecting every kind of a dip; whether it is a 100-point dip on the Nifty or 200-300 points dip on the Bank Nifty, to get bought into. So they were in for a bit of a surprise.
Now there is one important data point which one needs to look at. Whenever the market gets into some kind of a trigger mode from a derivative aspect, the first one is the open interest built up. We saw a 7% built up on open interest on Bank Nifty on Thursday and I think on Friday as well, there was some increase in the OI for the banking index, which means that there have been fresh shorts that have been built up into the system for the banking index. But there is not too much of a build up on the short side for the Nifty Futures, which indicates that you might see a bit of a mix and match kind of a price action between both these indices — Nifty and Bank Nifty particularly.
Next, the most important data point to look at is the put call ratios. Especially when you are heading towards a monthly expiry, which is due next week, the put call ratio becomes a very important indicator to watch out for. On the Nifty, the PCR is just at 0.75-0.79 levels, but in the Bank Nifty, the put call ratio has come back to 0.6. So, 0.6 and below is generally where we call it as an oversold territory, which leads into some sort of a bounce.
So in a nutshell, what I am trying to indicate is that if next week you see the banking index dropping down lower by say another 300-500 points, you could be in for a bit of a round of short covering where you might see many of these oversold banking names probably trying to play a strong rally or a recovery mode over the next couple of days.