FIIs What are they upto in India?

FIIs have been consistent sellers in the market and I am not talking only about the Cash market where they have sold net for Sept so far after a similar trend in August. The Index futures OI that I plot for FIIs [blue line] and shows a similar trend for much longer. FIIs were Max Long in Index futures a year ago. This year they did not add up that much and since June they are in exit mode.

Now positions came very close to zero in August and the markets bounced. Near Zero readings have caused market bottoms before, except in larger bearish trends when the Positions declined below the lower red line and FIIs were short in index futures. So either that is likely or FIIs will be pushed into buying again from here which could propel the market up like crazy. In that sense this is an inflection point.

IF FIIs keep selling then they will be going to the other side of the trade from Long to Short else they should start buying back. I have drawn a falling trendline from the June high and as long as the trend remains below it, I should think it is down. Starting Sept the blue line is falling again and not rising despite a rising market so they are not yet buying meaningfully.

 

The second chart which shows the extreme in Options OI in client positions as a % of the total. Look at the Red circles around all the tops since 2015. We are in the red zone again. What I do not know is whether large part of the decline will come this month or the next because of all the Put writing that has been done. But the upside should be limited on this indicator.

 

Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic and international clients. Views expressed in this article are purely of the author – Mr Rohit Srivastava – a leading technical analyst. Visit www.adamsmith.tv for services offered by Adam Smith Associates Pvt Ltd

 

Indian Sentiments Update

The weekly chart of the Sensex provides for a more reliable count for the move now. With the moves since march fitting a rising channel. Wave 1 and 3 here are 5 waves and 3<1, so we are in wave 5 which will be smaller still. And will end at or before the upper channel line at 32300. Will it be a one side move in wave 5 or also a subdivision like the first two impulse waves. While both are possible, subdivisions do sometimes repeat and if so then this last 5 waves up could spend a whole month completing even with a smaller target. But it can end abruptly as well.

So we will have to see what happens when a smaller degree 5 waves up completes, do we get a trend reversal. The 5th wave can also end up being an ending pattern which would then be 3-3-3-3-3 in terms of its internal wave counts.

All the above would have to weighed on what the sentiment is doing? Will FII data remain reliable where P Notes are concerned? Locally registered FIIs can still trade derivatives. So of the Index futures OI for FIIs. how much is P Notes? It would be a small amount. FIIs have a total of 1082696 contracts open in F&O yesterday evening. Not all are P Notes. So at a contract level yesterdays total Open contracts are higher than day before. So where is the big reduction in positions? However when we measure the net positions as long or short based on these charts it show that FIIs continue to reduce their index longs in futures over the last month. Will keep watching this data and so far as there is no major change in OI the data remains reliable, and P Notes are not affecting this much so far as P Note exposures have been coming down over the year since the regulator has been pushing for the same for a long time.

Another Indicator that I discussed in last weeks video update was the Client side options positions. That spiked yesterday to -33% short as Put OI hit a new high. I have inverted the indicator at the bottom of the chart so that negative readings can be associated with market tops. While rising Put OI is bullish, at extremes it becomes contrarian. Most tops were seen when we went higher than -30%.

The OI Put Call ratio for the market reached 1.228 above the red line shown below. The last high reading was in May that caused more of a broad market reaction than Nifty.

Anther way to look at the Call Put ratio is the actual difference than the ratio. Note the above two and this below are reflecting a big jump in PUT OI from different angles. This chart shows that when in value terms the OI is at negative 15k crore there are many market highs and lows, but at close to 20k crore near the red line we get some important highs and lows. Yesterday we were at -19320 crore. We were at a similar reading before the May top in Midcaps this year, the March 2015 top in NIfty [9119] and the Feb 2012 top and April 2011 market high.

Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic and international clients. Views expressed in this article are purely of the author – Mr Rohit Srivastava – a leading technical analyst. Visit www.adamsmith.tv for services offered by Adam Smith Associates Pvt Ltd