Where is Nifty going?

The following chart shows one of the different analyses I do on the Client (Retail Money) vs FIIs (Smart Money) positioning in Futures & Options segment.

It’s quite clear that the sidelined Retail Money (Client side) which changed hands with the Smart Money (FIIs side) since BREXIT is feeling high & dry and has found itself on the opposite side of the trade. Retail side has missed close to 7% rally in Nifty since then and is looking for the 1st opportunity (minor correction/pullback) to take a plunge.

Why I keep referring to BREXIT here and on my twitter handle because since that afternoon it was a 1-way ride for Nifty.

The overall FIIs positioning in F&O is super strong but looks difficult to sustain as it has already reached its pinnacle for 2016 with a very small almost negligible divergence wrt Client side (Retail money). That doesn’t mean, it can’t get stronger. Definitely it can, but there is also a possibility of some mean reversion going forward. But it’s the FIIs which as always have exploited the Retail side to their advantage and if at all mean reversion happens, it would be interesting to see if this time again they will chop the Retail side or make them hold the bag!!! If the mean reversion in FIIs positioning doesn’t happen, expect narrow range days going forward.

Though there are no signs of distribution yet, Nifty (spot) chart looks a bit tired with divergence on overall demand (3rd pane) which is fading slowly with each passing session. Its facing resistance ~8677, above which it could zoom to 8745. If its accepted in 8745-90 zone, 8865 is next. But a lot needs to be seen before these levels become reality.

If we go back a little bit, then after Budget day, 29th February, 2016, there was a complete inventory change in FIIs favor and they have only built on that with July 2016 comparatively a stronger month since then. Infact on 11th July 2016, I tweeted on what happened on 8th July 2016. Congratulations to those who believed in 8600 & subsequently 8700 in August 2016!

These positions are not created for a day or a week, but for weeks and months. But if some mean reversion happens in FIIs positioning, then in most likely scenario there should be a pullback in Nifty till 8570-18 (broad zone!!) where bulls should support it going forward. In extreme case, if 8482 is broken, then an overall review is required. Till then RIDE (buy) the main trend which is UP, ADD on pullbacks and SCALP (short) the retracement!

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