The first day of the August futures series ended on a cheerful note, with the Nifty breaching the resistance level of 4,350 and closing significantly higher at 4413. This is near the crucial 4,425 mark, which is the trend line resistance drawn from the January 10 peak of 6,357.
According to a technical analyst at Motilal Oswal Securities, a convincing crossover of 4,425 would take the index to 4,490, where it would witness an immediate resistance. Momentum indicators support an upmove, with a target of 4590 on the Nifty and 15,350 on the Sensex.
The FII rollover in Nifty August futures has been the lowest in the last seven months. The FIIs reduced their gross exposure in index futures from 53.5 million shares three days before July expiry to 32.5 million shares on the expiry day, which suggests that short positions were not rolled over. Moreover, the FIIs pruned their exposure in stock futures by almost 19 per cent in the last three trading days, indicating the rollover of long positions.
The marketwide rollovers in index and stock futures also fell to a six-month low of 79 per cent. This rollover of 79 per cent is the lowest since October 2005, when the figures were 78 per cent. In the last two years, a rollover of 79 per cent has taken place only in June 2006 and March 2008. Interestingly, past data shows that low rollovers led to higher returns in the subsequent months.
Options players sensed the uptrend earlier than others and bought call options much above the prevailing Nifty levels. In the August series, the 4500 strike price accounted for the highest call open interest of 2.25 million shares. The open interest at the strike prices of 4600 and 4700 has also been considerably higher at a million shares each.
Interestingly, the open interest addition took place on Friday, the first day of the August series. The implications of out-of-the-money call buying would be visible only next week. The Nifty is likely to move above 4500 (Sensex 15,100), but could be dragged to 4250 by a “C” wave correction. After all, the FIIs were net sellers in stock futures on Friday, while going long in index futures and options.
