Short heavy positions of FII could result in some short covering

Nifty started the week with a gap-up opening as the global markets stood firm when we had an extended weekend. The index continued its up move throughout the day led by some of the heavyweights, and ended around 21750 with gains of almost a couple of percent.
 
Post last week’s corrective phase, Nifty recovered much of those losses in a single trading session on Monday led by heavyweights such as ONGC and RELIANCE IND which witnessed up move of about 7-9 percent. Last week, the index had ended around its 40 DEMA support which was a crucial one, and the average played its role well during correction. If we look at the derivatives data, FII’s had rolled over their short bets in the index futures with short positions at 78 percent and net short contracts over 1.08 lakh contracts. These positions are seen as short-heavy, and such short-heavy positions around the support usually lead to a short covering move. Now, the index has retraced 61.8 percent of the recent correction in a single trading day, and leveling around 21900 would be the crucial zone of the index. The RSI oscillator on the hourly charts is indicating a positive momentum but it's yet to give a positive crossover on the daily chart. A close above 21900 could confirm a resumption of the uptrend. In the options segment, the 21500 put option has the highest open interest outstanding and thus, 21500 would be seen as immediate support from a short term perspective.
 
Traders are advised to trade with the momentum and look for stock-specific buying opportunities. Also one should keep a close tab on the data to see if these short-heavy positions are covered ahead of the event (Interim Budget).