Emkay Alternate Intelligence- Bounce back from support levels of 4950-4960

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Emkay Alternate Intelligence

Bounce back from support levels of 4950-4960

View: With most global indices trading in the negative territory, we expect the index to open on a negative note. We continue to reiterate our positive view on the index. We expect the Nifty to find support at around the 4950 levels on any declines.

We analyzed the ratio of stock futures open interest to index futures open interest. The ratio tends to move in a range of 1.62 to 2.58 levels. The ratio has a direct correlation of 0.70 with the Nifty in a 60-day data window. Currently, the ratio stands at 1.72 levels, close to reversals levels of 1.62. Any increase in the ratio from lower levels will indicate strength prevailing. A similar kind of move was observed during the month of April, 2011 and June, 2011 wherein a bounce in the ratio from lower levels of 1.62-1.67 was followed by an up move in the index.

Significant accumulation continued to prevail in Nifty September futures. Open interest increased to 25.81 million shares from 24.37 million shares. The current open interest stands highest in last 3 series. Most of the accumulation seems to be on short side as indicated by the FIIs data and declining cost of carry. FIIs turned net sellers to the tune of Rs5.66 billion.