Nifty caught in tug-of-war, follow-through buying crucial this week

Nifty exhibited a robust recovery on the last trading day of the week, forming a Bullish Piercing candlestick pattern on the daily charts. This suggests a potential pause in the recent downtrend. However, a follow-through of buying is needed to confirm this reversal pattern. The index remains below its 10-day EMA, indicating that buyers are less assertive, with higher levels continuing to act as a selling zone, serving as a strong resistance for the past eleven trading sessions.

Open Interest Declines

Comparing the index’s performance from the start of the week, Nifty closed the last session with an open interest (OI) of 15.61 million shares, down from 15.88 million shares at the week’s beginning (October 11th). This represents a 0.44% decrease in index futures compared to the start of the week, pointing to significant long unwinding and the squaring off of long positions.

FPI Long-Short Ratio Falls

The Long-Short ratio of Foreign Portfolio Investors (FPIs) has dropped notably, with long positions reducing to 33.57% on the last trading day of the week, down from 35.86% at the start of the week (October 11th) and 79.89% at the beginning of the October expiry series. This indicates that FPIs are net sellers and have intensified their bearish stance.

Key Levels for Weekly Series

In the weekly series, the 25,000 strike holds significant call open interest with 2.10 lakh contracts. On the put side, the 24,500 strike has substantial open interest with 1.45 lakh contracts. Active trading in the 24,900-25,000-call range and 24,700-24,800 put range indicates resistance around 24,900-25,000 and support between 24,700-24,800. Increased call writing at the 24,900-25,000 zone suggests that sellers are building strong positions at these key psychological levels, while put writers are cautiously adding positions at lower levels as the index trades at critical juncture.

Outlook for the Coming Week

The index is trading at make-or-break levels. On the daily chart, it has displayed a reversal candlestick pattern, following a recent Head & Shoulders breakdown. Sustained buying interest above the 25,000-25,100 zone is essential for further gains, as significant call writing at these levels presents a major challenge. A successful breakout above this zone could shift momentum to buyers, leading to short covering and potentially driving a stronger uptrend. Conversely, a dip below 24,690 could see sellers regain control, especially as long unwinding continues and FPIs persist in reducing their positions. This could push the index towards 24,500-24,300 levels. FIIs have been on a persistent selling spree, offloading nearly ₹70,000 crore worth of stocks in the cash segment so far. A pause in this selling pressure could provide a lift to the index.