Vijay L. Bhambwani's Ticker: Bulls may attempt to corner bears
Bulls need to buy aggressively and lend fresh buying support. PSUs, specially banks, could continue to see action.
Dear reader,
Last week, I wrote that there would be a tough tug-of-war between bulls and bears. The bull camp came up ahead of the bear camp, but by a narrow margin. Statistical data indicates bulls may be getting more aggressive in the coming week/s with a view to cornering bears into covering their short sales. I have written about “dual pressure" when bulls force bears to cover their short sales by buying back the stock; at the same time, bulls are keen buyers too. This dual buying results in sharp upward movements. And vice versa when bears squeeze the bulls. This attempt by bulls to trounce bears will be subject to no new surprise negative trigger emerging to play party pooper.
For their part, bulls need to buy aggressively and lend fresh buying support. Last week, I wrote that bulls could push bears to the ropes like a weak boxer succumbs to a stronger opponent. That did not quite happen as forcefully as anticipated. Fears of the escalation of hostilities between India and Pakistan kept nerves taut and tense. The undertone was optimistic, however. Do remember that short trading weeks tend to be bullish more often than not.
This week, action is likely to continue on public sector undertakings (PSUs) and banks in particular. The heavy weightage enjoyed by banks in the Nifty holds the key to future price trends. Heavyweight banks may see concerted buying action to boost headline indices. The retail segment has shown a higher risk appetite, as the margin-funded trading data indicates. Retail investors have stepped up their borrowings from brokers by 5.76% to buy stocks in April 2025.
Oil prices fell along the expected line as the Organization of the Petroleum Exporting Countries (Opec) data revealed sizable spare capacity vis-Ã -vis consumption levels. Gas prices shot up as the US declared an immediate sanction on any nation buying oil and gas from Iran. Iran has the second-largest gas reserves after Russia. Do note that the Russian gas is already sanctioned, which has resulted in a dual pressure situation in gas. Add the threats of curtailed supply by Australia due to electoral considerations, and you have a heady cocktail. However, spot delivery cargoes in Europe and Asia show no sign of panic. Which means stock prices of oil and gas EPC (engineering, procurement and construction) in the oil and gas drilling sector may see limited upside. Ditto for OMCs (oil marketing companies) stock prices, which will encounter resistance at higher levels.
In the industrial metals segment, rallies are encountering resistance as emerging data points towards rising stockpiles. Stock prices of metal mining companies are likely to witness limited upside.
Bullion is witnessing profit taking as I advocated last week. Safe haven buying slowed down further, as I had written last week. Add a firm US dollar index (DXY), which is an invoicing currency in the global commodity markets, and you see upsides meeting some unwinding. The long-term story remains intact. Look beyond 2025. The further the better.
Also read: Shareholding moves in Q4: What made FPIs ditch their darlings?
Indian bond markets are settling down, and bond yields are moving in a narrow range. The next RBI meeting is still weeks away. Keep the powder dry in the debt markets and wait for better opportunities.
Continue to trade with stop losses and tail-risk hedges in place. 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 broad-based Nifty led the rally, whereas the Bank Nifty came in second. Bullion fell as the US dollar strengthened. Gas prices rose due to Iranian sanctions. The rupee continued to firm up against the dollar. The Indian 10-year sovereign bond yield was unchanged.
NSE's market capitalisation gained marginally last week, which indicates broad-based buying. Market-wide position limited rose routinely after expiry.
US markets rose and provided 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 money? I also measure what percentage of the turnover was 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 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) –
The turnover contribution in the higher-risk, capital-intensive futures segment fell, which shows a lower risk appetite among derivatives traders.
In the relatively lower risk options segment, the turnover rose in index options. These instruments have the least risk of all four instruments available and demand the smallest amount of capital.
The overall data points towards risk contraction in the derivatives segment. Bulls must step up their buying if the upthrust is to continue.
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 stocks that are gaining outnumber the losers, bulls are dominant. This metric gauges the risk appetite of one marshmallow traders. These are pure intraday traders.
The Nifty clocked bigger gains last week, but the advance-decline ratio eased lower. At 0.72 (prior week 1.46), it indicates 72 gaining stocks versus 100 losing stocks. Intraday traders were cautious. Buying conviction must rise, or the upthrust may show signs of sagging momentum.
A tutorial video on the Marshmallow theory in trading is here.
The second chart I share is the market-wide position limits (MWPL). 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 gauges 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 data suggests retail traders are adding fresh exposure. However, the quantum of fresh positions leaves a lot to be desired. At 29.19%, it is lower than the comparable week in the previous months. That tells us retail traders were hesitant to commit large funds just yet. This hesitation must be shrugged off before a new upthrust is confirmed.
Also read: Manufacturing PMI: Don’t extrapolate surge in India’s exports just yet
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 their impetus readings were sharply lower. That tells me the rally was more due to customary short covering ahead of expiry. Ideally, price and impetus readings must rise together before a sustainable rally can be confirmed.
The actual price discovery mechanism will kick in from this week.
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 it to traded securities helps a trader estimate prevalent sentiments.
The Nifty clocked bigger gains last week, and the LWTD reading rose too. However, the gains were below par. The LWTD reading is—0.22 (prior week -0.99), which means fresh buying support, though lethargic this week, may be better than the previous week. Short covering may push prices higher. However, a sustainable rally comes from fresh buying rather than mere short covering.
A tutorial video on interpreting the LWTD indicator is here.
Nifty’s verdict
The previous week's candle is fuller-bodied than the previous week's. The sizable upper shadow indicates selling bias at higher levels. This is due to the anticipated overhead supply I wrote about recently. Traders who are stuck with longs at higher levels tend to sell at breakeven prices, which provides overhead supply and limits the upthrust.
The price is above its 25-week average, which is a six-month holding on cost of an average investor. The average itself is rising, which indicates the medium-term outlook is optimistic for now. We are headed towards the swing high of 24,800, which was made in December. This is where overhead supply may escalate. Once bulls absorb all the selling near this threshold and continue to buy, a fresh round of strong buying may be seen.
The support area has moved up to the 24,000 level, and bulls must defend this threshold in case of declines. As long as the Nifty stays above this threshold, bulls are in charge.
Your call to action – Watch the 24,000 level as a near-term support. Staying above this level strengthens bulls.
Last week, I estimated ranges between 56,300 – 53,025 and 24,750 – 23,325 on the Bank Nifty and Nifty, respectively. Both indices traded within specified parameters.
This week, I estimate ranges between 56,825 – 53,425 and 25,075 – 23,600 on 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.
Vijay L. Bhambwani
Vijay is the CEO of www.Bsplindia.com, a proprietary trading firm. He tweets at @vijaybhambwani
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