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Nifty must cross 26,100

Dear Reader,

Last week, I wrote that traders would be preoccupied with expiry and rollover activities. I also suggested that the markets could open on an optimistic note but would require active buying support in the second half to maintain momentum. Read here. That hypothesis was validated by the price action as headline indices slipped on Thursday and Friday.

My concerns about the above-average speculative buying in bullion (particularly silver) ETFs, which also led to some nervousness in other asset classes, were validated. Even though the price erosion in the underlying asset (silver) was relatively minuscule, the discount in ETFs compared to MCX futures stayed elevated and kept bulls under pressure. Margin-funded (MTF) exposure in Nippon silverbees (the largest ETF fund house) fell 2.63% by weight, whereas it rose 5.94% in goldbees in weight terms. Retail investors remain enthusiastic about silver and are willing to pay interest on their borrowings to stay long in silver ETFs.

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I have been advocating special attention to public sector undertaking (PSU) stocks for many quarters, as trader attention is high. Prices tend to log above-average intraday moves compared to many private sector company stocks. Last week, we observed significant unidirectional movements in many PSU stocks. Banking and financial stocks were particularly active due to the sector's significant weight in the Nifty. I maintain my view that there can be no sustainable rally in the markets unless banking and financial stocks participate.

     

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, whereas the Bank Nifty managed to gain mildly. The US dollar index (DXY) rose noticeably, triggering profit-taking in bullion at higher levels. Oil fell due to profit-taking, whereas gas saw seasonal cost-of-carry and short covering.

The rupee fell against the dollar, triggering profit-taking. The Indian 10-year benchmark bond yield remained almost unchanged even after the Fed cut rates, indicating that Indian bankers don’t expect an immediate rate cut. The National Stock Exchange (NSE) saw a mild increase in market capitalisation, indicating that the broader market remained mildly optimistic. Market-wide position limits (MWPL) fell routinely post-expiry.

US headline indices gained uniformly, providing tailwinds 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 their money? I measure the percentage of turnover contributed by the lower- and higher-risk instruments.

If they trade more of futures, which require sizable capital, their risk appetite is higher. Within the futures space, index futures are generally 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 highly capital-intensive, higher volatility futures segment eased. This is partly due to the high base effect from last week, ahead of the expiry-related rollover.

In the relatively lower-risk options segment, turnover contribution rose in the lowest-risk index options segment, which indicates that risk appetite was lower last week compared to the prior 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 way the winds are blowing. This simple yet accurate indicator calculates the ratio of rising stocks to falling stocks. As long as gaining stocks 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 losses on a week-on-week basis, but the advance-decline ratio remained constant at 1.04, which means there were 104 gainers for every 100 losing stocks. As long as the ratio stays above 1.0 with rising prices, the outlook remains bullish.

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 utilized by traders in the derivatives (F&O) 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.

The MWPL eased routinely after expiry and bottomed out at 39.71% on the expiry day, closing at 47.14% on Friday. We are in blue skies territory, as the method for computing MWPL has been updated as of October 2025. The reading remains elevated compared to empirical readings. Retail optimism remains high.

As a result, volatility will remain high as a larger number of positions will get shuffled every time a trigger emerges.

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, the indices moved in divergent directions, but the impetus readings fell uniformly. That tells us there was no force or momentum in the price action last week. Ideally, prices and impetus readings must rise together to indicate bullishness.

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 Nifty slipped last week, but the LWTD reading rose to 0.15 (from 0.09 in the prior week), indicating a likelihood of short-covering support on declines.

A tutorial video on interpreting the LWTD indicator is here

Nifty’s Verdict

Last week, we saw the repeat of the prior week’s inverted hammer formation. That formation occurs when prices open steady, attempt to rise, fail to hold higher levels and close lower. These are indications of weakness. Follow-up buying assumes critical importance as bulls need to prove themselves to the bears.

Last week, I suggested watching out for a breakout and sustained closing above the 26,104 level for confirmation of a fresh upmove. Bulls failed to fulfil this condition and were at a disadvantage thereafter. This condition remains in place, as does the resistance threshold.

The price remains above its 25-week average, and that means the medium-term outlook remains optimistic for now. As long as bulls keep the price above this average, the dip is routine in nature.  

The 26,104 hurdle needs crossing this week
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Your Call to Action – Only a sustained trade above the 26,104 level confirms the possibility of a fresh rally. In the event of declines, the 25,550 level needs to be defended.

Last week, I estimated ranges between 58,875 – 56,500 and 26,300 – 25,300 on the Bank Nifty and Nifty, respectively.  Both indices traded within their specified ranges.

This week, I estimate ranges between 58,950 – 56,575 and 26,225 – 25,200 on the Bank Nifty and Nifty, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 6 ticks. 

Have a profitable week.

Written by Vijay L Bhambwani, Vijay is the Ceo of www.Bsplindia.com. He tweets at @vijaybhambwani. Edited by Michael Steve Correya. Produced by Shad Hasnain.