FIIs expect a strong pullback

The Nifty closed in a Doji pattern on the last day of this month’s expiry today, indicating continuation of indecisiveness in the next series. Global cues are strong and hence the Nifty is likely to trade above 4,800 with strong support at 4,820.

Technically, the index is likely to face resistance at 4,946 and 5,020. The Nifty open interest data in February puts and calls indicate the index has strong support at 4,800 and is building support at 5,000. The resistance is likely to be above 5,000 and will be stronger above 5,200.

Intra-day trading data from Bloomberg suggest panic-selling below 4,850 and short-covering above 4,900. The rollovers in Nifty February series are considerably higher at 28.24 million shares compared with 22 million shares in January series same time last month.

Nifty February futures closed at six points premium to the spot, indicating long build-up. The foreign institutional investor (FII) trading data in index futures during the last couple of days suggest they have unwound long positions in Nifty January futures and built fresh long positions in February futures. This means the FIIs expect a strong pullback. India VIX for January 28 declined sharply by 6.78 per cent to 26.96, indicating return of stability. This volatility index is a measure of the market’s expectation of volatility over the near term.

The trading volume in Nifty February series puts was centered on 4,600-4,900 strikes, indicating that the index may not go below 4,900 in the near future. Traders bought 5,000 strike call options, probably to hedge short positions at 4,800 and 4,900 call options, Bloomberg data suggested. The 5,100 and 5,200 calls saw short-covering, mostly through buy-side trades at lower premium, indicating positive outlook for the market.