FIIs have been unwinding their longs in the index futures segment again, and positions are now nearly back to zero. We have seen markets bottom near term from the near zero positions point recently but in 2012 after a negative divergence the positions went negative and short nifty. So this level has to be closely watched.
I noted in the LSR that Volume PCR rises during market declines as markets panic and people buy more protection, so despite the high OI in Puts there is no volume. Even in recent days we have two readings of 0.39 near the lower end of the range. Lower highs in the VPCR at market lows shows lower and lower levels of fear. So on this measure we are far from any selling climax but quite the contrary. I expect this narrow wedging pattern will break on the upside during the next market decline as volatility rises and risk perceptions go up again. The VPCR is a medium term cycle indicator. Readings above 0.7 would mark nearing a medium term bottom.
The Open Interest Put/Call ratio on the other hand is a directional indicator and in the short term moves up and down with the prices. So after the negative divergence with NIfty the nifty did roll over. On the 2 previous tops in Aug and Sept similar readings caused a top but the market bottomed before the indicator could go to the lower red line and be oversold. This time if we finally have a medium term top in place it should do so. As long as the PCR is trending lower it indicates a falling trend in the market
Finally the most interesting of indices are the BSE new indices. At first I did not think much of them but as I do now they have good patterns and are more broad based as well in some cases. So yesterday I discussed the BSE Finance index that has a 100 financials in it and not dominated by a few. The weekly momentum of the Finance index has been in sell mode for weeks and not whipsawed like the others. So here is the BSE Industrials index, and it has a good mix of large cap and mid cap stocks. 225 stocks in total it is quite broad based. So what do I like about it? That the chart has perfect touch points on the monthly chart for an ending pattern, and unlike the Nifty 500 the entire pattern is overlapped. Lastly wave E of the wedge is itself an ending diagonal as shown by blue lines. This index is convincing that something long term ended here.