F&O Expiry Outlook Aug 25: Good time to take profits, market in overbought zone with support at 17800-17700

By Ruchit Jain

After ending the last weekly expiry around 17600, the Nifty has continued its momentum this week to rally further and is now a bit off reclaiming the 18000 mark. Indices continued to attract longs , which provided an upward impetus. The relentless surge continues for the market as the Nifty nearly reclaimed the 18,000 mark shortly after recent swing lows.

From the lows, the initial bullish move was mostly due to short covering and we saw long formations in this series that moved the markets higher. Although the long positions are still intact, we have not seen any interim correction due to the absence of short sales. FII started this series on a positive note and added long positions. However, they unwound some of the long positions and formed short positions on the weekly expiry day. They now have a “Long Short Ratio” at 53%, which was around 60% a day ago. On the other hand, the Client segment also has long positions of around 53%.

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Over the past few days, we have not seen any short positions added or unwinds of positions that have supported the market. Now the technical readings have reached the overbought zone, and the strongest hands are showing signs of a long run first. Additionally, over the past week, we have seen many call sellers unwind their positions as the market continued to rise, forcing them to adjust their positions. In the monthly series, 18000 call and 17800 put now have the highest outstanding open interest.

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Looking at the data, it looks like the time has come to book profits on long positions before the monthly expiration and get some money off the table. However, given that the recent momentum has been very strong, one can wait for a confirmation of crucial support levels to break prices to take trades in the opposite direction. The immediate support zone is placed at 17800-17700 below which the index could experience a correction phase again. Conversely, 18100-18200 will be seen as an immediate resistance zone.

(Ruchit Jain is the Head of Research at 5paisa.com. Opinions expressed are those of the author. Please consult your financial advisor before investing.)