Expiry Can Keep Volatily Elevated

Conflicts Can Turn into War War Without A Warning and Trigger Higher Volatily in Asset Pries. That means traders need to tread carefully. I have been warning my readers since last year that 2025 marks a phase of Procyclicity in Financial Markets. This Phase Witnesses Asset Pries Moving in the same direction as the broader global ear. That means relatively lower returns and a higher capital outlay.

Last week, I wrote that there was a one-in-theree possibility of oil programs Climbing Higher and Iran Choking of the Gulf of Hormuz. The Gulf of Hormuz Remains Open for Shipping as I Write this Piece. And energy markets remain adequately supplied, as I have been maintaining for many qualities. It is the fear of supply chains breaking down that has been raise rather than the demand-Supply equation changing. Unless the hostilites take a very ugly turn, energy price rallies are likely to be limited. These price gyrations can lead to turbulence in the stock pristed of oil marketing companies (OMCs). Should Oil and Gas Price Rise Substantily, OMC Stock Pries Can come under pressure.

Industrial Metals May See a Routine Month-End Rally, which can passibly push up prises of metal mining stocks as long as overall market sentences are constant. Bullion can correct, especially If Peace Overms and Strength Emerge in the Us Dollar. However, the long-term story remains bulish, and delivery-bled investors should continue to think beyond 2025. Bully in Bully in a rally in bullion remain intact.

The announcing to reduce provisioning on Infrastructure Project-Based lending May Trigger a Mild Near-Term uptick in some infra stocks. Public sector undertaking (PSU) Stocks will continue to remove in the limelight. The government has expressed interest in offloading stake in select psu banks, and that may keep trading activity focused on these stocks. Being an expiry week, Volativity May be Above Average, and Traders are likely to be focused on rolling over or squareing up their existing trades. Fresh Buying Activity May Be Limited as Long as Middle East Hostiles are visible on the Horizon.

Fixed Income Investors Should Continue to Keep the powder Dry and Wait for Better Opportunities.

I sugges my readers trade with stop losses and tail Risk Hedges in place. A Tutorial Video on Tail Risk (Hacinda) Hedges is here – https://www.youtube.com/watch?v=7aungqxhbfk

Rearview mirror

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

The rally was land by the broad-based nifty 50 index, and the bank nifty brought up the rear. A Strong Dollar and Esing Bullion Pries Calmed The Nerves of Traders. Uncertainty remains elevated, thought. Oil and gas prices rose marginally, and that was a reliable as traders were anxious about energy prices going through the roof. The rupee slipped against the dollar, capping the upside in our markets.

Indian 10-Year Benchmark Yields Rose, Which means Bond Prisis Were Lower. That exerted some pressure on banking stocks. The National Stock Exchange (NSE) Gained 0.12% in Market Capitalisation, which tells me the rally was raather narrow. It was the index-sheighted stocks that gained more than small and madcap stocks. Marketwide Position Limits (MWPL) Rose Along Routine Lines.

Us markets were edgy, and that kept our markets in check too.

Retail Risk Appetite

I use a simple yet accurate yardstick for measuring the conviction levels of retail traders – WHERE ARENI ARE they Deploying Money. I measure what percentage of the turnover Lower- and Higher-Risk Instruments Contributed.

If they trade more of futures, which require sizable 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 Agrassion 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) –

In the Higher Capital-Intensive and Higher Volativity Futures Segment, We Saw Turnover Contribution Fall. Usually, futures turns ahead of expires as traders square up in the expiring month and initiating trades in the next month. That results in dual turnover. That was missing last week.

In the relatively lower-risk options segment, we saw that turnover rose in the lowest-risk index options, whereas stock options’ Turnover Contribution Fell. Overall, we saw that risk appetiite was quite subdued last week.

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 will go the winds are blowing. This Simple Yet Accurate Indicator Computes The Ratio of Rising to Falling Stocks. As long as gainers outnumber the losers, bulls are dominant. This metric gauges the risk appetiite of one marshmallow traders. These are pure intraday traders.

The nifty logged weekly Gains thanks to the spike on Friday, which see more of short covers than fresh buying (refer to the impetus chart beLow for more details). That left the weekly advance-decline ratio subdued at 0.84 (Prior Week 1.12). That Tells Us there was 84 boyers for every 100 sellers. I have been advocating to my readers that this ratio must stay worth the 1.0 level consistently to indicate a sustainable upthrust.

INTRADAY TRADERS Showed Lower Buying Conviction.

A tutorial video on the marshmallow theory in trading is here – www.youtube.com/watch?v=GFNKVTSCWFY

The second chart I share is the marketwide position limits. This measures the Amount of Exposure Utilized 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-pocked, high-conviction traders who roll over their trades to the next session/s.

The mwpl rose routinely but styed marginally lower than the previous month’s peak due to the israel -ran hostiles. The reading remains the second highest in the past four pre-expiry weeks covered by the chart. That means retail traders are still carrying Substantial positions as of now. In the Margin Trading Facility (MTF), Retail Borrowing for Stock Investing Came Down by a Mere 0.6% on a Week-on-Veeek Basis.

High Mwpl Remains A Double-Edged Sword, as it can lead to a crowded exit if any negative news trigger emerges. Watch this space for data on Friday’s mwpl number.

A dedicated tutorial video on how to interpret mwpl data in more ways than one is available here – https://www.youtube.com/watch?v=T2QBGUK7QRI

The third chart I share is my in-House indicator, ‘impetus.’ It measures the force in any price move. Last week, I raised a red flag as bot indices fell, but the impetus readings were high. The impetus readings for both indices have presen significantly with sharp price declines.

Last week, both indices rose, but the nifty showed a Falling impetus reading. This means the risk in the broad-based nifty was more due to short covering than fresh buying. This is consistent with the pre-expiry behavior of bears. Long positions are rolled over more aggressively than shorts.

I remind my readers of the bicycle analogy. I consider bot these indices to be the two wheels of a bicycle. Unless bot move in tandem, the bicycle risks toppling over. Watch this aspect keenly in the week ahead.

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

The nifty clokked gains, but the lwtd reading fell to -0.20 (Prior Week 0.11), which tells me fresh buying support support support or weak. This is consistent with an expiry week. Sure enough, short covering can cushion declines, but we needful buying to trigger a sustainable rally.

A tutorial video on interpreting the lwtd indicator is here – https://www.youtube.com/watch?v=yag076Z1ADK

Nifty’s verdict

Last week, I wrote that the bears had information Now, we find a bullish candle on the weekly Japanese Candlestick Chart. However, the body of this candle is contained with the prior week’s candle. This is called an “inside formation” in the western style of technical analysis. IT Signals Indecision and Consolidation. Follow-up action invariable determines the Near-Term Outcome.

The support level of 24,400 advocated last week remains valid, and as long as bulls keep the nifty about this threshold, bulls still have a chance. The resistance remains at 25,250, which must be overcome on a sustained closing Basis, or Else a Fresh Breakout May Be Elusive.

Your call to action

Watch the 25,250 Level as a Near-Term Resistance. Staying Above This Level strengthens bulls.

Last Week, I Estimated Ranges Between 57,175 – 53,850 and 25,400 – 24,025 on the bank nifty and nifty, respectively. Both indices tradeed within their specified resistance levels.

This week, I Estimate Ranges Between 57,800 – 54,700 and 25,725 – 24,500 on the bank nifty and nifty, respectively.
Trade light with stort Stop Losses. Avoid trading counters with spores wider than 8 ticks.

Have a profitable week.

Vijay l. bhambwani

Vijay is the ceo of www.bsplindia.comA proprietary trading firm. He tweets at @vijaybhambwani.