Aggressive short build-up in Nifty, avoid longs below 17,750: ICICIdirect

Rationale

Nifty started the new year on a weak footing and failed to sustain at 18200 levels last week. Nifty has given away almost 400 points in the last 3 sessions of the week as extended selling pressure was seen among BFSI and Technology heavyweights. On the other hand, midcap and small cap stocks have shown relative resilience and remained largely sideways outperforming Nifty. Going ahead, we believe surpassing the Call bases should be crucial for any sustainable recovery.

From the data perspective, Nifty has witnessed aggressive short build-up in the last few sessions as Nifty near month OI increased by almost 15 lakh shares in last week. Moreover, aggressive Call writing positions are visible at ATM Call strikes with 18000 Call holding more than 1.2 crore shares for the coming weekly expiry. Hence closure among these positions should be closely watched for any meaningful recovery.Raj Deepak SinghRaj Deepak Singh

Technology heavyweights are likely to remain in focus due to their upcoming results this week. From the data front,

has seen some aggressive short build-up in both futures and options last week. Hence a move above 1500 may trigger a short covering move in the stock. However, the rest of the stocks have not seen any major futures activity.

Despite recent market weakness, the volatility index hasn’t risen much and it is still around 15 levels suggesting expectations of limited declines. However, a move below recent lows of 17750 may trigger an increase in volatility. Hence longs should be avoided below these levels.

Keeping the view of rebound in the market as it is trading near its December lows of 17800. We feel traders should take protected strategies like Collar Spread where risk will be limited.
(The author, Raj Deepak Singh, Analyst – F&O, Currency, Commodities, ICICIdirect)