FnO Data Sheet - 21-08-11

Another high volume day. As expected in Friday's notes, a rally took shape. We are just 3 days away from expiry. Series expiry generally brings more pain to the people who are already in pain. This month, bulls are in pain - does the expiry bring more pain? Or, do we rally for the last 3 days so as to inflict maximum pain for maximum people? Let us see.

My notes:

1. FII have sold 25K contracts today. What is interesting to note is that, the OI has decreased by 14K contracts. This is interesting because, we know that FII are carrying shorts in the series. So, when more contracts are sold, OI has to go up. However, OI has decreased - that too with price rise. As per my understanding, it means that, whatever longs are carried by FII, they have closed them to some extent. So, in effect up to 39K contracts of longs are closed. The OI for FII is inclusive of all months, so it rules out rollover.

2. PCR has reached the bottom end again, 0.91.

3. FII stats indicate 30K contracts of options writing. However, the OI in options has not changed. It indicates, they have closed some of the written options. Now, in the option table, there is significant covering at 4800CE, 4900CE and 5000PE. So, one side is closed by the FII and other side is closed by weak hands. I mean, if call covering is by FII, we may have more rally in hand, but weak longs have closed. The converse is also possible. Tomorrow might give us the clue.

4. Nifty Future OI has decreased by 15L contracts. Decrease of OI when price is rising, is not a bullish sign. According to my understanding, it is weakness creeping into the system.

5. For me, the defining observation comes from the equities. So far, in this series, FII have sold equities worth 10140 crore. DII have bought equities worth 7600 crore. I am assuming the remaining is bought by retail because DII includes all Indian Institutions. If you go a bit deeper and observe, the difference between FII selling and DII buying is getting more pronounced in the last 2-3 days. The first large difference came on 9th August, when the difference is around 1000 crore. That day, nifty was at psychologically important level of 5000-5100. The difference is becoming pronounced again in the last 2-3 days where nifty is at another important psychological level of 4800.

Let me put my hypothesis before you. The retailers are playing for a bottom at these important psychological levels. First at 5100 levels and secondly at 4800 levels. So, there is some portfolio buying happening at these levels. However, history suggests that retailers seldom catch the bottom correctly. For me, it indicates that there is still more downside left. I am not speaking about this series or next series, but in general. Well, it is easy to argue that I am bearishly biased. But still it does no harm for all to be taking extra precaution.

You can find the entire data sheet here.