Short covering by FIIs lead to an upmove in Nifty

In the last one week, Nifty has witnessed a gradual pullback move where the index witnessed recovery from last week’s low of around 19000 led by positive momentum in the global markets. Nifty has surpassed the 19400 mark and the broader markets too have seen a slow and gradual recovery.

Recently, our markets have moved more in tandem with the global markets movement and the global news flows had more impact on the momentum. The US markets recovered after the Fed policy outcome and hence, our markets too witnessed a pullback move in the last one week. FII’s had significant short positions outstanding (about 85 percent positions on the short side last week) in the index futures segment. The positions were short-heavy and hence, they have started covering their short positions leading to this upmove in the Nifty. Nifty has surpassed its initial hurdle of 19370 which was the 38.2 percent retracement level of the recent correction. The daily and the hourly RSI readings positively indicate a positive short-term momentum. However, the Nifty has multiple hurdles in this up move where the 40 EMA resistance is around 19440 and then the 50 percent retracement level at 19530. In spite of some short covering, there are still significant short positions outstanding and if these shorts are covered further, then we could see further momentum. On the lower side, the immediate support is placed around 19270 and 19000. In the weekly options segment, 19300 put and 19500 call options have the highest open interest which could be the trading range in the next 2-3 sessions.

One should ride the existing positions with a trailing stop loss method and be very stock-specific in looking for trading opportunities.