Nifty Open Interest Analysis

[Option.Trader]

Date: 8.3.2013

Cant get a more clear picture than today's data... 79% of 5700-5900CE OI got liquidated and 99% of 5800-6000PE OI got added.

The only caveat being on the futures side, no one , neither FII or Retail is taking long position home... ironically once you are out of all shorts in the system, its only fundamentals which have to push the market up...... technically as its a close above 5940, a retest of previous highs should be attempted... after a consolidation

 

[moody_man]

OT, i think FII's for the past couple of days have been running for cover.
The other way to interpret the data is decrease in open interest with +qty and +amount leading to such a big spike in nifty is def FII running for cover.

 

[moody_man]

Why do we always think that FII make money all the time. In fact i have come across an article where it was evident that FII too loose money (albeit some of them)

 

[Option.Trader]

Why do we always think that FII make money all the time. In fact i have come across an article where it was evident that FII too loose money (albeit some of them)

True and if you see this rally its been on the back of short covering...but what lends credence to the theory is that 4 days before, we had seen OI piling up on 5700PE when market was trading at 5650 levels... so majority of participants had the belief that this was the bottom... also speculative huge bets were placed on 5900CE which got unwond after 100% profit booking...now the money that is required is reflected from FII trade... so probability that they would have profited is higher
Anyway all these are speculation... but due to the fantastic way of putting out of data reports by NSE we get a glimpse of the herd... and believe me, in a market as skewed by large institutions as India... we have no option but to follow the herd... last few days, chartist,technical guys gave so many levels..5820,5880,5920,5940...none of them held up... instead of debating...lets wash our hands in the flowing water... a little profit never hurt anyone

 

[bigbullinside]

technically as its a close above 5940, a retest of previous highs should be attempted... after a consolidation

So based on my study, if the index breaches its recent high, it will surpass its all time high. And since Dow is not showing any signs of slowing down. There is still time for our markets to catch up and notch new highs up...........

Cheers.

 

[twist]

dear option.trader thanks for this amazing thread

please give me information on some main points like how to identify trend changes, revrsals, exhaustion using open interest data

i am very keen to learn and add this theory/study to my trading

Thanks

 

[a1b1trader]

So based on my study, if the index breaches its recent high, it will surpass its all time high. And since Dow is not showing any signs of slowing down. There is still time for our markets to catch up and notch new highs up...........

Cheers.

Hi BBS
Will you please elaborate your study in detail.
Thanks

 

[bigbullinside]

Hi BBS
Will you please elaborate your study in detail.
Thanks

Now, this one is the monthly Nifty chart.
Here we see that a major triangle is forming and the index at the moment with the current upmove, is looking to break it on the upside.
So, once the previous high is taken out on a closing basis,(trendline coming in at 6100-6130) we can be sure that it will give a further move on the upside.

That said, lets look at the daily charts...............
Here, Nifty gave a H&S breakdown a few days back.
Nifty made a low of 5663. Now if you look at the monthly charts, this was very close to the support line. Nifty reversed from there and right now is about 250 points higher.
Now we need to consider a few things that are happening right now-
1. Nifty touched the upper Bollinger band on 01-Jan-2013. After that we saw a move from 5950.85 to 6111.8 (160 points). If this upmove continues, we will again touch the upper band which is at 6007 right now and moving up. So with the previous move of 160, we can consider another 150 points from the point of contact. i.e. ~6007+150=~6150-6160. Which will be a new recent high, surpassing 6111.

2. H&S can now be classified as a partly false signal, as it only reached the first target. And right now Nifty is comfortably above the neckline. So, that is a bullish signal.

3. Global markets are not showing any signs of slowing down.

So all in all, if the current rally continues, we will see the same kind of momentum on the upside, as we have seen until now. I will post another little quirky signal that I stumbled upon with Bollinger band that supports this claim. And this will not stop until we have atleast touched 6350-6400. But this will happen (according to me), if and only if the Index manages to kiss the upper band.

 

[timepass]

Also, the monthly chart has a sort of cup and handle formation, though the bowl is too narrow. Still, it could be a bullish formation.

 

[chemmanian]

Hi Bigbullinside
Nice analysis. You have used log scale in Y axis. Can we use linear scale for long term charts or log scale is preferred. I have this query because I checked the same monthly chart for 7 years with linear scale . It shows that Nifty has not yet touched trendline support (support at 5500).