Nifty @ 10,700

Nifty targeting 10700 in November series with support near 10200; FIIs turn buyers after 3 months

The Nifty50 has continued its up move after breaking out from 10150-10200 range. This remains a major support price range and the index can move up to 10,700.

The banking space is supporting the market due to performance returning in underperforming banking heavyweights

Option writers are quite active at 10200 Put options. Eventually, these positions are coming closer to 10300 Put options.

This means the major correction in the index may not be seen. Positions of Call writers have been formed at 10500 and 10700 Call strikes. These are stuck up Call writing positions. Hence, a move beyond 10500 can be extended to 10700 levels

The Nifty futures positions are formed with the increasing basis. This means the index has seen long additions where FIIs are also adding positions on the long side.

So far, foreign investors (FIIs) had remained quite skeptical. However, recently their long positions have started increasing, particularly in the F&O segment

The volatility has broadly remained lower within 11-12. The closure of Call writing positions had triggered come pullback in volatility. However, addition of writing positions in Put options has kept the volatility subdued

Nifty Bank: Ongoing rally likely to continue unless index remains above 25400

The index started the November series on a muted note and consolidated near 25000 for a few days. However, a sharp move towards the north was seen where the index rallied nearly 680 points for the week on the back of broad-based participation by both PSU and private sector banks

As the series progressed, 25000 strike Puts added nearly 8900 contracts whereas writing was seen in 25500 and 25600 strike Calls.

On last Friday, the index managed to close above this level. Closure of open interest in those Calls is clearly visible. These positions have shifted towards 25800 and 26000 strike Calls indicating more upside in coming days

The open interest is seen building on to the short side at the start of the series. We feel this short is trapped and have not got an exit so closure of this positions can be seen if the index falls from current levels. This, in turn, will provide cushion to the index near 25400

The current price ratio (Nifty Bank/Nifty) is placed near 2.45 levels. The outperformance is likely to continue in banking stocks, which is likely to take the index higher in coming days.

After three months long halt, FIIs turn buyers of Indian equities:

FII outflows halted during the week as they bought equities worth over US$275 million. This weekly inflow, if continued, will trigger a reversal in FII selling that Indian equities witnessed in trailing three months. This bodes well for further upsides in the Nifty.

The risk on sentiment also picked up the pace in other EMs with a strong inflow of over US$620 million in South Korea. A look at FIIs’ action in F&O segment suggests FIIs’ focus has shifted to the cash segment. They paired some long bets in F&O space.

In the index futures segment, there was the closure of US$202 million. In the index options segment, there was buying of over US$970 million (hedging). In the stock future segment, there was long closure as well

US tax cut plans and the selection of new US Fed chair Jerome Powell kept grabbing news screens. While chances of a tax cut plan passage are still not strong, President Donald Trump nominated Jerome Powell as the next Federal Reserve chair on Thursday.

The new Fed chair was greeted with a potentially ominous signal from the bond market as the US treasury yield curve flattened, with the US five year- the US 30 year bond yield curve plummeting to the lowest level since 2007.

However, some investors believed the dollar will more likely turn up (in the longer term) under Powell because the economic trajectory in the US is going up as the US President has with the selection of Jerome Powell, ensured continuity in the Fed's monetary policy.

That should mean the Fed is on track to raise interest rates multiple times and the unwinding of the balance sheet remains on track. A short-term dip in dollar and bond yields have pulled sentiments for EMs with MSCI EM Index moving to 1130.

Disclaimer: The author is Head of Derivative from ICICIdirect. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.