Index is geared for short-term pullback towards 17500-17700

The global markets continue to trade with higher volatility as the US markets are still hovering around their recent lows. However, both the indexes are trading at their supports and have positive divergence as per technical evidence, which indicates the probability of a pullback move in the US markets. This could have a positive impact on global equities as well in the near term. Nifty has been consolidating a range but the ‘200 DEMA’ has been acting as a sacrosanct on declines. 

Now if we dig into the derivatives data, the indices have seen some short covering in the last few sessions, while there have been some long formations as well. FIIs had formed short positions in the first couple of weeks of the October series, but of late have started covering some of the short positions. Their ‘Long Short Ratio’ in the index futures segment, which declined to around 15 percent recently, is now around 24 percent, which indicates short covering. On the flip side, the client section has had net longs since the start of the series and has decent long positions in the system with the ‘Long Short Ratio’ at 68 percent. 

In the options segment, the put writers have added positions with the highest open interest build-up in the 17000 strike. On the flip side, 17500 is the immediate resistance as per the open interest data which if crossed, could lead the index toward 17700. Looking at the above data, it seems that the index is geared for a short-term pullback move towards 17500-17700 and hence, traders should look to trade with a positive bias. The Bank Nifty index has shown a relative outperformance, which could continue to lead in this uptrend.