FIIs covered some short positions which led markets higher

Our markets have consolidated in a range in the last couple of trading sessions, wherein the index corrected in Monday’s session and recovered those losses the next day. Tuesday’s up move was mainly led by the IT sector which led to an up move in the benchmark as well. Nifty ended the day above 21900 with gains of about three-fourths of a percent.
 
FIIs started the February series with net short positions of around one lakh contracts and a ‘Long Short Ratio’ of 22 percent. These positions were short-heavy, and hence we have seen some short covering in a few sessions. The ratio has now improved to 36 percent while net short positions have also reduced to around 62000 contracts. In the options segment, an open interest increase has been seen in 21800-21600 put options in the weekly options contracts while 22200 is seen as a hurdle as per the open interest data. Technically, Nifty has recently formed a trend reversal pattern on the daily chart. However, the index has then consolidated in range and is yet to show any confirmation of a directional move. A ‘Double Top’ pattern which coincided with a ‘Shooting Star’ reversal pattern has made 21127 the immediate hurdle for the index and that needs to be surpassed to negate the pattern, a continuation of the trend. On the flipside, the 20 DEMA around 21640 is a crucial support for the index which if broken, then it could lead to a corrective phase in the index. 

Currently, one should wait for a breakout beyond the above-mentioned levels to forecast a directional move in the index. Till then, one can look to trade with a stock-specific approach. RBI Policy outcome which is scheduled on Thursday could be a trigger for a short-term directional move and hence, traders are advised to keep a close watch on the same.