The Derivatives Denizen

Your one stop derivatives guide.

Feb 21, 2004

Markets fall with volumes.

Bears regain hold on sentiments. Outstandings fall ahead of expiry.

The markets have failed to hold on to the previous weeks gains. The impeding expiry of the February series is likely to see a further withdrawal of funds from the nervous bulls as markets seem to grope for direction. The pointers are all indicating unwinding as outstanding positions stagnate and the top 5 outstanding stocks show lower open interest. The implied volatility has fallen considerably too, which is a sign that the markets are settling at lower levels. Our investors will recollect that we had advocated in the previous week, that the bears were gunning for the 1850 levels on the Nifty and the same has come about as per our expectations. Caution is advocated in the coming week.

Market internals - outstandings

Observation - The outstanding long positions have rising marginally as can be observed from the above table. The fact that the futures shows lower outstandings signals nervousness as bulls have preferred to reduce commitments. The increase in open interest has come from options alone - a cautious indicator. Qualitatively speaking, this week has seen the bulls go further on the defensive. Click here to view previous weeks file

Note - Previous gross long positions Rs 8,819 crs, net long positions Rs 8,031 crs - positions are on a week-on-week basis

Source - The National Stock Exchange.

Observation - The PCR shows a tilt towards the bears as the ratios are showing higher outstanding short positions on a week-on-week basis. The total PCR still remains positive. The equilibrium point is 0.50 : 1. The Nifty has seen a surprise reversal as the last trading day of the week saw squaring up of massive short positions by bear operators. This raises the probability that the 1830 low maybe a short term bottom for the coming week. Click here to view previous weeks file. Positions are on a week-on-week basis

Source - The National Stock Exchange.

Market internals - Nifty put / call trends - 5 highest open interest contracts

Observation - The index contracts show which way the players are tilting. The bulls have added only 44 crores in outstanding long positions in the top 5 strike prices, whereas the bears have reduced 27 crores in outstanding shorts. It implies a halt in further short selling by bears and easing of downward pressure on the indices. Positions are on a week-on-week basis

Most actively traded contracts - Calls

Most actively traded contracts - Puts

Observation - An analysis of the most active contracts traded throws up an interesting observation - the bears are shifting their focus to attack the Nifty at 1900 & 1850 puts. The bulls are also concentrating on the 1850 & 1900 Nifty strike. Technicals also show a short term trend determination at the 1810 - 1830 band. Should the Nifty stay above this band, the bulls will prevail with strength. Click here to view previous weeks file

Source - The National Stock Exchange.

5 Highest outstanding scrips

Observation - The action remains polarised around the big four, however, outstanding open interest in all the stocks has shrunk. Reliance, Telco and Tisco are likely to determine the market trends in the coming days. Last week we had accurately pointed out bullishness in Reliance and profit taking in Tisco to our subscribers based on the above indicators along with other parameters. Click here to view previous weeks file. Positions are on a week-on-week basis

 

Source - The National Stock Exchange.

Higher implied volatility is used by swing / momentum traders to guage the fluctuation that a counter is likely to provide in either direction. If a trade is initiated in the right direction ( buy / sell ) at the right time & strike price, these trades result in superlative returns.

Observation - Our investors are advised to watch the above highly volatile counters for signs of a bounce-back. However, other factors too need to be taken into account before a fresh trade is initiated. Note how the volatility is coming down across the board - a sign of the markets settling down at lower levels.

 

Source - The National Stock Exchange.

Changes in outstanding futures positions.

Stars of the week

Stock	Open interest	Stock price	Outlook
Maruti	Up	Up	Bullish
Tata Power	Up	Down	Accumulation
Tisco	Up	Up	Bullish

 

Note - +++ signifies higher open interest in the February, March & April series simultaneously. Click here to view previous weeks file

 

Source - The National Stock Exchange

Have a profitable day.

 

Vijay L. Bhambwani

Ceo :- Bsplindia.com

The author is a Mumbai  based investment consultant and invites feedback at Vijay@BSPLindia.com and  (022) 23438482 / 23400345.

SEBI disclosure -  The author has no positions in  the stocks mentioned above.

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