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Last week, I wrote that you should be ready for a see-saw market that tests your patience with its sporadic, knee-jerk volatility. Markets lived up to my hypothesis based on the statistical weight of evidence. Even though headline indices notched up mild gains, the markets barely felt bullish. This is because the action was polarised around selected segments of the markets. Index-weighted stocks were particularly active, which explains why both indices gained.

This week, too, I expect this unimpressive trading pattern to continue. Retail traders appear cautious, as margin-funded trading (broker-funded buying) data indicates. The commitment levels have fallen 0.46% on a week-on-week basis. As you read on, you will get a feel of why the markets may appear to rally, your portfolio need not move in lockstep.

Last week, I estimated that banking and financial sector stocks would run into resistance after the Reserve Bank of India announced new provisioning norms. That was evident in the markets. With these stocks carrying a weightage of 35.27% in the Nifty 50, they also capped the broader market’s upside. The overhang of selling on rallies is likely to continue in banking stocks this week, too.

In the commodities space, crude oil witnessed a sharp decline on the mere possibility of a truce between Iran and the US. While no change was seen in the marine traffic in the Strait of Hormuz, crude oil prices ran ahead of the possibility of the real opening of the shipping lanes. This underscores my long-standing view that energy markets are adequately supplied and there is no supercycle in this asset class. With the expiry of the May oil derivatives series approaching, higher levels are likely to encounter resistance. Barring any unforeseen geopolitical development, I expect oil and gas to slip lower.

Bullion is showing signs of stabilising and even firming up, particularly in silver. This aligns with my long-standing view that my readers should ignore the near-term outlook, which is muddied. The long-term, multi-year outlook remains bullish as ever. Just don’t leverage (buy with borrowed money), please!

Industrial metals are showing signs of perking up. Part of the reason is the weakening US dollar index (DXY), and the other is the continued fear of supply chain disruption. There is also the usual fiat currency debasement trade, alive and kicking. As the buying power of the paper currency erodes, big money takes shelter in buying hard assets (commodities). If you think about it, this is nothing but inflation 101, in the simplest terms. I maintain my view that expectations of supercycles are premature in this segment too. Bull market, yes; supercycle no.

Where stocks are concerned, public sector undertakings are likely to witness renewed action in the near term. There has been a spurt of activity after the West Bengal election results, and this interest may sustain for some time. The noteworthy would be public sector banks after the announcement of State Bank of India’s quarterly results, which fell below expectations. If more public-sector banks report similar results, expect the unwinding to accelerate.

Fixed-income investors should keep their powder dry in anticipation of higher yields that seem to be on the way.

Trade light this week, as the markets seem stuck in a range that benefits theta decay (options writers) at the expense of retail intraday traders. Theta decay is the rate at which an options contract loses its value as its expiration date nears. Maintain stop-losses diligently and continue with tail risk hedges remaining in place.

Rear-view mirror

Let us assess what happened last week so we can gauge what to expect in the coming week.

The rally was led by the Bank Nifty, with the broad-based Nifty bringing up the rear. The weakness in the dollar bolstered bullish sentiment in emerging market equities and bullion.

Oil and gas prices fell as hopes of Iran-US peace talks emerged. The rupee staged a late rally versus the dollar. India’s 10-year bond yield eased a little as bond markets paused for breath. The National Stock Exchange clocked 2.19% gain in market capitalisation as retail optimism continued.

The market-wide position limits (MWPL) continued to rise routinely post expiry. US indices rallied in unison, providing tailwinds for our markets.

Retail risk appetite

I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders—where are they deploying money. I measure the percentage of turnover contributed by lower- and higher-risk instruments.

If they trade more of futures, which require sizeable capital, their risk appetite is higher. In the futures space, index futures are less volatile than stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week) —

Turnover in the capital-intensive, high-volatility futures segment fell sharply. That tells us the average retail trader was shying away from risk.

In the relatively lower-risk options segment, turnover rose in the lowest-volatility, lowest-capital-intensive index options. That tells me the bulls were going through half-hearted motions of being optimistic.

Matryoshka analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator computes the ratio of rising to falling stocks. As long as the gainers outnumber the losers, the bulls are dominant. This metric gauges the risk appetite of one marshmallow traders. These are pure intraday traders.

While the Nifty clocked mildly higher gains last week, the advance-decline ratio rose in tandem. At 1.69 (prior week 1.22), it indicates there were 169 gainers for every 100 losers. As long as this ratio stays above 1.0 with rising prices, bulls have an upper hand.

The second chart I share is the market-wide position limits. This measures the amount of exposure traders utilised in the derivatives (F&O) space as a component of the total exposure allowed by the regulator. This metric gauges the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session (s).

The MWPL reading rose to 50.49%, higher than the comparable week last month. Do note that the post-expiry low this month was higher than the prior month as well. That suggests swing traders in derivatives (futures and options) are showing signs of increased risk appetite. As long as this number rises with rising prices its advantage for bulls.

The third chart I share is my in-house indicator ‘impetus’. It measures the force in any price move. Last week, both indices notched gains, but the impetus readings were lower. That means the rally was partly due to short covering and therefore lacked very strong momentum. Either strong follow-up buying emerges, or the gains risk fizzling out.

The final chart I share is my in-house indicator ‘LWTD’. It computes lift, weight, thrust and drag encountered by any security. These are four forces any powered aircraft faces in flight, so applying them to traded securities helps a trader estimate prevailing sentiment.

While the Nifty gained 0.74% compared to the prior week’s gains of 0.42%, the LWTD reading leapfrogged to 0.28 (prior week -0.19). Coupled with poor impetus reading, much of the gains in LWTD were triggered by short covering. However, a higher LWTD reading is a welcome sign as short covering can at least cushion declines or even trigger a temporary rally. However, it takes strong fresh buying to push markets to a new high.

Nifty’s verdict

The weekly candle chart of the Nifty shows a small-bodied candle that is unable to rally past the 25-week moving average. This average is a proxy for the six-month average holding cost of a retail investor. That tells me the medium-term outlook remains under pressure for now. The 24,650 hurdle I have been advocating as a precondition for a fresh rally remained in place. Till bulls manage to go past this resistance, the rank and file trader may choose to sit on the fence.

On the flip side, a sustained trade below the 23,882 level may open the doors to fresh declines.

Your call to action

Sustained trade above the 24,650 level indicates the possibility of a fresh rally. Only if this level is overcome confidently can a new bullish phase begin. A sustained trade below the 23,800 level can trigger fresh weakness.

Last week, I estimated ranges of 57,425–52,300 and 24,900–23,075 for the Bank Nifty and Nifty, respectively. Both indices traded within their specified ranges. This week, I estimate ranges of 58,000–52,600 and 25,100–23,250 for the Bank Nifty and Nifty, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 8 ticks. Have a profitable week.

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Last week, I wrote ‘hopium’ levels were rising in the retail investors camp, read here. That reading was validated by the markets as they edged higher. I maintain my view that the rally is powered by hope more than conviction. As I present statistical data sets, that hypothesis will become clearer.

Since 2023, I have been waxing eloquent on the outsized weightage of bank stocks in the Nifty 50. It’s truly the swing sector—wherever they go, the market follows.

Last week, the Reserve Bank of India announced a new set of guidelines that marks a significant shift in how lenders assess and provide for credit risk. That’s set to drag stock prices and, therefore, the indices. The state election results due today can weigh as well. Last week, being a shorter one also cushioned the decline. This week, the field is wide open.

While the usual push-and-pull of the war is likely to continue, the impact on asset prices will probably recede over time. Remember how markets would fall initially every time the Islamic State released a video of beheadings in West Asia? Over time, markets went back to business as usual. Ditto for the Ukraine and Gaza wars. I expect prices to remain impacted by geopolitical events, but the magnitude of the price moves may be muted.

Last week, we said margin-funded exposure rose to new highs at ₹1.18 trillion. Retail investors borrowed aggressively to buy the dips. This validated my hypothesis that hopium levels would rise in the near term.

This week, we’re likely to see continued focus on public sector undertakings, particularly banks. Markets will discount the new RBI norms for provisioning. Expect larger-than-average price moves on bank stocks. The rate-sensitive firms, with capital-intensive business models and heavy debt, are likely to witness above average volatility. And if fuel prices are hiked at the pump, the markets may get even more nervous.

As I write this piece on Saturday morning, there has been no confirmation on these bits of news. However, bond and currency markets took it on the chin as the rupee tested new lows and bond yields shattered the 7% ceiling. These are cautionary signs for equities. Should the Bharatiya Janata Party win West Bengal elections, markets may rally initially, but follow-up buying needs to be aggressive if the rally is to be sustained. Higher levels will probably encounter progressively higher resistance levels.

Crude oil prices are likely to remain volatile, but higher levels are witnessing resistance. While the bias may be upwards and get a boost if any large-scale hostilities break out, the upside is witnessing poor follow-up buying. Gas prices remain relatively subdued. Bullion shows divergent trends as silver attempts to find its feet compared to gold. I maintain my view that the long-term outlook for patient delivery investors remains robust. Just do not leverage (buy with borrowed funds).

Industrial metals witnessed a routine month-end spike and need follow-up buying to sustain the momentum. Higher levels are likely to meet resistance in metals, too. Which means stocks of metal mining companies will have calibrated upsides.

Continue to trade cautiously with stop losses and tail risk (Hacienda) hedges in place. Fixed-income investors should keep their powder dry in anticipation of better yields.

Rear-view mirror

Let us assess what happened last week so we can gauge what to expect in the coming week.

The broad-based Nifty 50 was buoyant, while the Bank Nifty slipped. Bullion was divergent as silver stole the thunder from gold. Oil and gas jumped on fears of hostilities resuming. The dollar slipped, but the rupee weakened against a weaker greenback. That curbed sentiment too.

India’s 10-year sovereign bond yields spiked past 7%, which added to the downward pressure on the Bank Nifty. NSE market capitalisation rose 0.62%, which tells us the broader market remains optimistic. Market-wide position limits (MWPL) eased routinely. The US markets saw a late rally, which cushioned declines in domestic markets.

Retail risk appetite

I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders: Where are they deploying money? I measure what percentage of the turnover was contributed by the lower- and higher-risk instruments.

If they trade more of futures, which require sizeable capital, their risk appetite is higher. Within the futures space, index futures are less volatile compared to stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week):

The capital-intensive, high-volatility futures segment saw turnover fall as risk appetite compressed. In the relatively lower-risk, lower capital-intensive options segment, turnover rose in the stock options at the expense of index options. That tells me retail traders were optimistic but played a safe hand via options rather than futures.

Matryoshka analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of the way the winds are blowing. This simple yet accurate indicator computes the ratio of the number of rising stocks to falling stocks. As long as the gaining stocks outnumber the losers, bulls are dominant. This metric gauges the risk appetite of one marshmallow traders. These are pure intraday traders.

The Nifty clocked small gains, and the advance-decline ratio reflected that at 1.22 (prior week 0.95). For every 100 losers, there were 122 gainers. As long as the ratio remains above the 1.0 level with rising prices, bulls will have the upper hand.

The second chart I share is the market-wide position limits. This measures the amount of exposure utilised by traders in the derivatives (F&O) space as a component of the total exposure allowed by the regulator. This metric gauges the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session(s).

The MWPL eased routinely post-expiry, but the fall was shallow, and lower levels found keen buyers. That tells me the probability of MWPL rising this week is fairly good. As long as MWPL rises rapidly with prices, there will be optimism in the markets.

The third chart I share is my in-house indicator ‘impetus’. It measures the force in any price move. Last week, the Nifty rose with poor momentum, whereas the Bank Nifty fell with higher momentum. I reiterate my view that both indices are wheels of a bicycle and must move in unison, or the bicycle may topple. This week, if both indices diverge, bulls may be in trouble.

The final chart I share is my in-house indicator ‘LWTD.’ It computes lift, weight, thrust, and drag encountered by any security. These are four forces that any powered aircraft faces during flight, so applying them to traded securities helps a trader estimate prevalent sentiments.

While the Nifty clocked small gains, the LWTD reading fell to -0.19 (prior week 0.07). That tells us fresh buying support may be weak. While short covering may always be expected, it can at best cushion declines or trigger a temporary relief rally. But it takes aggressive fresh buying to trigger a new high.

Nifty’s verdict

The weekly chart shows an inverted hammer of sorts as the bulls attempted to push prices higher, failed, and the price slipped to the lower end of the weekly range. The price remained below the 25-week moving average, which is the proxy for the six-month average holding cost of an average investor. The average itself is falling, which tells us there is some downward pressure in the near term. The price must overcome this moving average and stay above it.

I have been advocating resistance at the 24,650 levels, which remains in place. I want this hurdle to be overcome if the bulls are to get their initiative back. On the flip side, continuous trade below the weekly low of 23,796 may trigger fresh declines.

Your call to action

Sustained trade above the 24,650 level indicates the possibility of a fresh rally. Only if this level is overcome confidently can a new bullish phase begin. A sustained trade below the 23,800 level can trigger fresh weakness.

Last week, I estimated ranges between 58,650-53,525 and 24,800-23,000 for the Bank Nifty and Nifty 50, respectively. Both indices traded within their specified ranges. This week, I estimate ranges between 57,425-52,300 and 24,900-23,075 on the Bank Nifty and Nifty 50, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 8 ticks. Have a profitable week.

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Last week, I wrote that the markets would possibly witness a hopium-based rally, but it was doubtful that it would sustain. That hypothesis, based on statistical signals sent out by the markets, was proven right. The initial upthrust failed to imbibe follow-up buying, and the markets slipped in the latter half of the week. The geopolitical arena was the usual see-saw of hope and despair. The stock market is slowly getting immune to the war news and focusing on routine indicators.

Returning to routine indicators, I noticed the initial optimism in the stock market triggered a hopium-based feel-good factor last week. This is because leveraged exposure (buying stocks with borrowed money) in MTF (margin-funded trading) segment went up noticeably last week—5.52% in five trading sessions to ₹1.13 trillion. What is immediately apparent is that buy-on-dips was at play in the retail investors’ camp. If aggressive follow-up buying emerges (a relatively lower probability occurrence), this hopium may get some justification. Failing which, the impending expiry of the April derivatives series can see “last in, first out” (LIFO) style exit from long positions.

This week is shorter due to a market holiday on Friday. Barring unforeseen circumstances, shorter weeks tend to favour bulls. Combine a short week with a monthly expiry, and you may see higher than average volatility.

Last week, we saw a late sell-off in tech stocks. That may see unwinding on higher levels as trapped bulls may attempt to exit long positions at break-even prices. Trading activity may remain polarised around public sector undertakings (PSUs) as they have been in the news recently. Pay particular attention to banking and financial sector stocks as they command a 35.45% weightage in the Nifty 50. In the commodity space, oil and gas will remain subject to geopolitical news flow and likely higher-than-average volatility. This may be particularly so in the case of oil. Higher levels are likely to witness profit-taking. I maintain my long-standing view that there is no supercycle in the energy markets.

Bullion may see short-term turbulence. If the news of hostilities turns sharper and more adverse, there is a possibility of increased flight-to-cash and some declines in bullion. While the short-term waters may be muddied, the long-term picture for the very patient delivery-based investors remains unchanged. Just do not leverage your purchases.

Industrial metals may see a routine month-end short covering, and that can boost prospects for metal stocks. Talks of a “supercycle” in copper have resurfaced as prices showed signs of firming up. This is routine in markets, which are triggered by momentum. While commodity prices are firming up as faith in fiat (paper) currencies erodes, this does not necessarily imply a supercycle. The near term may see higher levels.

Being a short, expiry week, traders are likely to focus on closing and/or rolling over their trades. The post-expiry leverage levels will tell us the risk appetite prevalent in the markets. For now, trade light and maintain stop losses diligently. Tail risk (Hacienda) hedges would be in order.

Fixed-income investors should continue to keep the powder dry in anticipation of higher yields.

A tutorial video on tail risk (Hacienda) hedges is here.

Rear-view mirror

Let us assess what happened last week so we can gauge what to expect in the coming week.

The fall was led by the broad-based Nifty as the late selloff in technology stocks dragged this index lower. Bank Nifty brought up the rear as the 10-year Indian sovereign bond yields firmed up. The rupee slipped against the US dollar and eroded confidence in the bull camp.

A strong dollar exerted pressure on bullion, which saw profit-taking. Oil rallied on fears of supply disruptions, and gas fell on warm weather. The National Stock Exchange (NSE) market capitalisation declined 0.61%, which tells us the selling was broad-based. Market-wide position limits (MWPL) rose routinely.

US indices saw mixed activity, with the Dow Jones Industrial Average slipping while other indices gained. This did not give any concrete guidance to our markets.

Retail risk appetite

I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders—where are they deploying money? I measure the percentage of turnover contributed by the lower- and higher-risk instruments.

If they trade more of futures, which require sizeable capital, their risk appetite is higher. Within the futures space, index futures are less volatile than stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week):

Turnover contribution in the high capital-intensive, higher volatility futures segment rose. This is partially attributed to the impending expiry of the April series. Traders close their positions in the expiring month and initiate the same trades in the next month series, which results in higher turnover.

In the relatively lower-risk options segment, turnover in the index options segment fell. These are the least volatile and capital-intensive in derivatives segment. Overall outlook points towards optimism ahead of the expiry of the April derivatives contracts.

Matryoshka analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator computes the ratio of the number of rising stocks to falling stocks. As long as the gaining stocks outnumber the losers, bulls are dominant. This metric gauges the risk appetite of one marshmallow traders. These are pure intraday traders.

The Nifty fell 1.87%, and the advance-decline ratio eased to 0.95 (prior week 3.21), which means there were 95 gainers for every 100 losers. A reading of 3 or higher is deemed unsustainable and hints of unwinding by strong hands.

Unless this ratio stays above 1.0 with rising prices, bulls are likely to remain under pressure. A tutorial video on the Marshmallow trading theory is here.

The second chart I share is the market-wide position limits. This measures the amount of exposure utilised by traders in the derivatives (F&O) space as a component of the total exposure allowed by the regulator. This metric gauges the risk appetite of two marshmallow traders. These are deep-pocketed, high conviction traders who roll over their trades to the next session/s.

The MWPL rose routinely ahead of expiry, but overall level remained below the commensurate week in prior months. That tells us swing traders are cautiously optimistic rather than outright euphoric. Watch out for monthly decline in MWPL post-expiry for signs of how much exposure bulls rollover to the next month.
A dedicated tutorial video on how to interpret MWPL data in more ways than one is available here.

The third chart I share is my in-house indicator ‘impetus’. It measures the force in any price move. Last week, both indices fell, but so did their impetus readings. That tells us the falls were on lower momentum. This is a minor comfort, at best, since markets can decline on lower momentum for prolonged periods.

The final chart I share is my in-house indicator ‘LWTD.’ It computes lift, weight, thrust, and drag encountered by any security. These are four forces that any powered aircraft faces during flight, so applying them to traded securities helps a trader estimate prevalent sentiments.

The LWTD reading fell in tandem with the Nifty to 0.07 level (prior week 0.41). That means fresh buying support may be limited or half-hearted. This is not unusual in a monthly expiry week. Markets are indicating caution, so my readers should be cautious when building fresh long exposure.

A tutorial video on interpreting the LWTD indicator is here.

The Nifty 50 verdict

I have been advocating resistance at the 24,400 level on Nifty 50 for a couple of weeks. Last week, I advocated that the 25-week average at 24,650 (which is a proxy for the six-month average holding cost of a retail investor) needs to be overcome to trigger a rally. Note how this very average proved to be a reversal point for the index.

The resistance at 24,650 remains the hurdle for bulls to overcome. Only above this threshold will short-covering cum fresh buying, accelerate. On the flip side, sustained trade below the weekly low at 23,800 can open the doors to further downsides. Aggressive bottom fishing should be avoided for now.

Your call to action

Sustained trade above the 24,650 level indicates the possibility of a fresh rally. Only if this level is overcome confidently can a new bullish phase begin. A sustained trade below the 23,800 level can trigger fresh weakness.

Last week, I estimated ranges between 59,050-54,100 and 25,250-23,450 on the Bank Nifty and Nifty 50, respectively. Both indices traded within their specified ranges. This week, I estimate ranges between 58,650-53,525 and 24,800-23,000 on the Bank Nifty and Nifty 50, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 8 ticks. Have a profitable week.

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Dear reader,

Last week, I wrote there was a relief rally likely in our equity market. Markets validated that hypothesis based on statistical and behavioural data. This week too, there exists a possibility of a continued upthrust, though it is likely to be triggered more by “hopium” than fundamental strength.

On Friday, Tehran declared the Strait of Hormuz open, only to reverse course 12 hours later after Iran objected to Israel’s continued attacks on Lebanon. The fallout was a crash in oil prices, signalling that fears of $150, $200 and $250 per barrel were unfounded. Remember, I have been stating since many quarters that energy markets remain adequately supplied.

It is the feel-good factor of cheaper crude that may trigger the “hopium” rally, though I expect oil prices to rise marginally after the closure of the Strait of Hormuz. At the time of writing this piece on Saturday afternoon, the Iranians seem unrelenting about Hormuz. Volatility is likely to remain elevated and may even test new highs. That means retail traders are unlikely to make sizeable trading profits this week.

Trading action is likely to remain polarised on public sector undertakings, particularly banks—the highest weighted stocks in Nifty 50 and are a swing factor. Whichever way bank stocks go, they tend to take the broader markets with themselves. In the commodities space, we saw a mini-crash in oil prices, even as natural gas prices have remained dull and listless throughout the war. This is along the lines of my view that higher levels can attract profit taking. Barring an initial jump in oil prices, higher levels will witness resistance.

Industrial metals may witness routine month-end short-covering, but the overall outlook is that of resistance at higher levels. That means metals and mining have limited upside potential this week. Bullion witnessed some clawback as the US dollar weakened. I maintain my long-standing view that patient, long-term, delivery-based investors can still expect more profits as long as they avoid leveraged buying.

Fixed income investors should keep the powder dry even though yields on fixed income products have improved recently. I expect even higher yields going forward.

Continue to trade light with stop losses in place as volatility is likely to stay above average. Continue to deploy tail risk (Hacienda) hedges as a standard operating procedure. A tutorial video on tail risk (Hacienda) hedges is here.

Rear View Mirror

Let us assess what happened last week, so we can guesstimate what to expect in the coming week.

The rally was led by the broad-based Nifty, while the Bank Nifty brought up the rear. Bullion saw fresh safe-haven buying. Oil prices fell and gas prices inched higher. A falling US dollar boosted bullion. The rupee firmed up against the dollar.

The Indian 10-year bond yields were unchanged. NSE market capitalisation rose smartly as buying was broad-based. Market wide position limits rose routinely. The US indices rose uniformly and provided tail winds to our markets.

Retail Risk Appetite: I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders—where are they deploying money. I measure what percentage of the turnover was contributed by the lower- and higher-risk instruments.

If they trade more of futures which require sizeable capital, their risk appetite is higher. Within the futures space, index futures are less volatile compared to stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are average of all trading days of the week):

• The high-volatility, higher capital-intensive futures segment saw higher turnover contribution, which is a sign of increased risk appetite.

• In the relatively lower-risk options segment, the turnover was higher in stock options, which are more volatile compared to index options. Overall risk appetite was significantly higher.

Matryoshka Analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator computes the ratio of number of the rising stocks compared to falling stocks. As long as gainers outnumber the losers, bulls are dominant. This metric is a gauge of the risk appetite of one marshmallow traders. These are pure intraday traders.

The Nifty clocked lower gains which trickled down to the advance-decline ratio too. At 3.21 (prior week 3.73) there were 321 gaining stocks for every 100 losers. That number is highly optimistic and may slip this week. However, as long as this ratio stays above 1.0 with higher prices, bulls remain in the driver’s seat. A tutorial video on the Marshmallow theory in trading is here.

The second chart I share is the market wide position limits. This measures the amount of exposure utilised by traders in the derivatives space as a component of the total exposure allowed by the regulator. This metric is a gauge of the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session/s.

The MWPL reading rose past 50%, but remained at its lowest in the commensurate week in many months. Swing traders are returning back to the markets albeit a bit carefully. I don’t blame them, what with the extreme volatility and war news. Swing traders are showing higher risk appetite compared to the prior week.

A dedicated tutorial video on how to interpret MWPL data in more ways than one is available here.

The third chart I share is my in-house indicator ‘impetus’. It measures the force in any price move. Last week, both indices rose, but on lower impetus readings. That means momentum was weak and maybe even triggered by some short-covering. Ideally, prices and impetus should have risen together to indicate a sustainable upthrust.

The final chart I share is my in-house indicator ‘LWTD’. It computes the lift, weight, thrust and drag encountered by any security. These are four forces that any powered aircraft faces during flight; so, applying it to traded securities helps a trader estimate prevalent sentiments.

The Nifty clocked smaller gains, but the LWTD reading continued to rise. That indicates the probability of fresh buying remains above normal. We can expect declines to be cushioned, barring unforeseen circumstances.

A tutorial video on interpreting the LWTD indicator is here.

Nifty’s Verdict

Last week, we saw a bullish power candle which indicated resurgence in the bull camp. We see a sizeable bullish candle yet again and that tells us follow-up buying was forthcoming. The price remains below its 25-week average, which is a proxy for the six-month holding cost of an average investor. I have been advocating resistance at 24,400 level since a fortnight. Note how the weekly high of the Nifty is exactly 24,400.

Now, it is important for Nifty 50 to not only surpass the 24,400 hurdle on a sustained closing basis, but also stay above the 25-week average currently poised near 24,625 levels. That will raise the odds of a fresh upmove. Do note that follow-up buying will really need to be aggressive to maintain the upward momentum.

Bullish bets are off if the Nifty 50 falls below the weekly low of 23,555, which appears to be a long shot. Bulls need to offer huge follow-up support.

Your call to action

Sustained trade above the 24,650 level indicates the possibility of a fresh rally. Only if this level is overcome confidently can a new bullish phase begin. A sustained trade below the 23,550 level can trigger fresh weakness.

Last week, I estimated 58,425-53,400 and 25,000-23,100 for the Bank Nifty and Nifty 50, respectively. Both indices traded within their specified ranges. This week, I estimate ranges between 59,050-54,100 and 25,250-23,450 on the Bank Nifty and Nifty 50 respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 8 ticks. Have a profitable week!