Trading Guide: FOMO likely to fuel rally, bulls eye a breach of 17000-17200: Anand James of Geojit Financial Services

On Monday, despite Nifty ending well above its Friday closing, India VIX settled at 28.57, a good 8.4 per cent off the opening lows.

This is consistent with our inference that there has been a structural shift higher in both straddles as well as VIX, suggesting that both could stay elevated.

In fact, from Aug 2021 onwards, straddles began fetching systematically higher prices with 03 March straddles shooting to 700 on 24th Feb, following VIX’s spike to 33.9. This was the first time since 2020 that VIX rose from sub 11 levels to above 30.
 

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Meanwhile, after Feb contracts’ expiry, 88.5 per cent of the participants in the client category were seen to be long, which is close to a year high of 91.2.

Anand James, Chief Market Strategist at Geojit Financial Services helped us decode what does the F&O data suggest and how FIIs are looking at Indian markets:

Traditionally, short selling clients are more mobile, and the long clients usually stay put through expiries, but the steep fall of 24th prompted 18 per cent of the longs to be liquidated while forcing only 0.7 per cent of traders to cover their shorts when compared to the start of Feb series.

Meanwhile, FIIs have been raising their long positions throughout February, boosting their long positions by 22 per cent compared to the start of the series.

This is uncharacteristic of the FIIs from two angles. For one, their long OI is 26% above the three-month average, and the gap between short and long OI of FIIs has widened.

Secondly, longs in stock futures are usually dominated by clients, but at this pace, FIIs could be holding similar positions as the clients soon.

This either marks a shift in bias in FIIs favouring upsides or can be considered as a hedge which is consistent with the increased selling by FIIs in the cash market in the last month.

Either way, with FIIs having only about 40 per cent of their positions in the index futures as shorts, there appears no compelling case for a short-covering led eccentric upsides, that usually follow panic meltdown - at least until mid-March, an event filled month.

The panic selloff on 24th Feb had pushed 74 per cent of NSE 500 stocks below the popular 200-Day MA, as opposed to 56 per cent above this key MA at the start of February.

However, with Monday’s push higher, 35 per cent of the NSE 500 stocks are now back above the 200-DMA.

We feel that FOMO (fear of missing out) could fuel upside possibilities, lifting more stocks above key averages.

But, it is prudent to look for a breach of 17700, or atleast above 17350 regions before thinking of 19,000 and beyond are entertained, and for now, eyes are on how the 17000-17200 challenge is met with.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)