OPEN INTEREST AND VOLUME

Open interest is the total number of options and/or futures contracts that are not closed or delivered on a particular day. Open interest is NOT the same thing as volume of options and futures trades
    TIME                   TRADING ACTIVITY                 OPEN INTEREST
Jan 1            A buy 1 option and B sell 1 option               1
Jan 2            C buy 1 option and D sell 5 option              2
Jan 3            A sell his 1 option and D buy 1 option        5
Jan 4            E buy 5 option and C sell his 5 option         5
         

• On Jan 1, A buys an option, which leaves an open interest and also creates trading volume of 1
• On Jan 2, C and D create trading volume of 5 and there are also 5 more options left open
• On Jan 3, A takes an offsetting position and therefore open interest is reduced by 1, and trading volume is 1
• On Jan 4, E simply replaces C and therefore open interest does not change, trading volume increases by 5.

Open interest, the total number of open contracts on a security, applies primarily to the futures market. It is often used to confirm trends and trend reversals for futures and options contracts.

What Open Interest Tells Us

A contract has both a buyer and a seller, so the two market players combine to make one contract. The open-interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number. An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.

Rules of Open Interest

• If prices are rising and open interest is increasing at a rate faster than its average, this is a bullish sign. More participants are entering the market, involving additional buying, and any purchases are generally aggressive in nature
• If the open-interest numbers flatten following a rising trend in both price and open interest, take this as a warning sign of an impending top
• High open interest at market tops is a bearish signal if the price drop is sudden, since this will force many 'weak' longs to liquidate. Occasionally, such conditions set off a self-feeding, downward spiral
• An unusually high or record open interest in a bull market is a danger signal. When a rising trend of open interest begins to reverse, expect a bear trend to get underway
• A breakout from a trading range will be much stronger if open interest rises during the consolidation. This is because many traders will be caught on the wrong side of the market when the breakout finally takes place. When the price moves out of the trading range, these traders are forced to abandon their positions. It is possible to take this rule one step further and say the greater the rise in open interest during the consolidation, the greater the potential for the subsequent move
• Rising prices and a decline in open interest at a rate greater than the seasonal norm is bearish. This market condition develops because short covering and not fundamental demand is fueling the rising price trend. In these circumstances money is flowing out of the market. Consequently, when the short covering has run its course, prices will decline
• If prices are declining and the open interest rises more than the seasonal average, this indicates that new short positions are being opened. As long as this process continues it is a bearish factor, but once the shorts begin to cover it turns bullish
• A decline in both price and open interest indicates liquidation by discouraged traders with long positions. As long as this trend continues, it is a bearish sign. Once open interest stabilizes at a low level, the liquidation is over and prices are then in a position to rally again.

If prices are rising and the volume and open interest are both up, the market is decidedly strong. If the prices are rising and the volume and open interest are both down, the market is weakening. Now, if prices are declining and the volume and open interest are up, the market is weak, but when prices are declining and the volume and open interest are down, the market is gaining strength.

Volume and open interest

Used in conjunction with open interest, volume represents the total number of shares or contracts that have changed hands in a one-day trading session in the commodities or options market. The greater the amount of trading during a market session, the higher the trading volume. A new student to technical analysis can easily see that the volume represents a measure of intensity or pressure behind a price trend. The greater the volume the more we can expect the existing trend to continue rather than reverse.
Volume precedes price, which means that the loss of either upside price pressure in an uptrend or downside pressure in a downtrend will show up in the volume figures before presenting itself as a reversal in trend on the bar chart. The rules that have been set in stone for both volume and open interest are combined because of their similarity; however, having said that, there are always exceptions to the rule, and we should look at them.
PRICE                VOLUME        OPEN INTEREST         MARKET
RISING                UP                       UP                            STRONG
RISING               DOWN                 DOWN                       WEAK   
DECLINING       DOWN                 DOWN                       WEAK  
DECLINING       DOWN                 DOWN                     STRONG

So, price action increasing in an uptrend and open interest on the rise are interpreted as new money coming into the market (reflecting new buyers) and is considered bullish. Now, if the price action is rising and the open interest is on the decline, short sellers covering their positions are causing the rally. Money is therefore leaving the marketplace and is considered bearish.
If prices are in a downtrend and open interest is on the rise, chartists know that new money is coming into the market, showing aggressive new short selling. This scenario will prove out a continuation of a downtrend and a bearish condition. Lastly, if the total open interest is falling off and prices are declining, the price decline is being caused by disgruntled long position holders being forced to liquidate their positions. Technicians view this scenario as a strong position technically because the downtrend will end as all the sellers have sold their positions. The following chart therefore emerges:
Bullish- an increasing open interest in rising market
Bearish:- a declining open interest in a rising market
Bearish:- an increasing open interest in a falling market
Bullish:- a declining open interest in a falling market

MARKET OUTLOOK.

 As I have discussed earlier about the nifty level 5217. It has given closing above 5217 on monthly basis, so I don't expect that market will close now bellow this level on monthly basis rest of the year.

If market does not close below this level expect nifty touching 5900-6000-6300 level in rest of month of 2012. So every 200 points dip will be buying opportunity for the minimum target of 6000 level.

SAIL

BUY STEEL AUTHORITY OF INDIA LIMITED (SAIL) AROUND 94.00  HOLD FOR 10-15 DAYS TARGET 105.

NIFTY X-RAY REPORT FOR 06 JULY

 LAST DAY SNAP SHOT:-
The market started trading range bound through out the day but closed with moderate gains today with banking being the biggest gainer. The Sensex closed at 17539 up 76 points from its previous close, and the Nifty closed at 5327 up 25 points. The CNX Midcap index was up 0.8% while the BSE Smallcap  index gained 1.6%. The market breadth was positive with advances at 1055 against declines of 417 on the NSE.


CURRENT TECHNICAL SITUATION:-

As per Nifty daily and weekly charts it is in strong bullish mode.Bullish engulfing Candlestick pattern has formed by NIFTY today Prior to pattern formation this share was in uptrend.

Share has hit one month high on 05/07/2012
As per RSI , S&P CNX NIFTY is in over bought territory with a value of 71.43 
As per fast stochastic , S&P CNX NIFTY is in over bought range with a value of 97.82 
As per slow stochastic , S&P CNX NIFTY is in over bought range with a value of 97.82 

NIFTY is moving above 50, 100 and 200 days Simple Moving Average comfortably. On Daily Eod chart RSI and Slow stochastic indicator is showing overbought but yet not given any reversal signal.

FII bought  Index future worth rs 124 cr and nifty open interest increased by 2.0% indicating fresh long has entered into the system.

Nifty 5300 put added highest 952,300 shares in open interest. 5300 put price has decreased by 7.90 rupees and open interest increased by 952300 shares, indicating that even 5300 put have been written comfortably for the next trading session. Nifty 5400 call standing with highest open interest at 6,774,750 shares on the call side with addition of 372,000 new shares along with price increasing with 4.30 rupees, indicating clearly that 5400 calls have buying interest. These option data are supporting for bull move.

Now lets consider Fibonacci level on charts.

5630-4770=860 points

4770--- 61.8% retracement level comes at 5302 which has comfortably 
crossed by Nifty yesterday. Now 76% retracement  level comes at
 5422. All indicators and option and Fii data is indicating to touch this
 level. I have posted in my previous post a nifty 2 year charts, If we
 consider that chart we will find that Nifty has recovered almost 76% 
of its every big fall wave. Currently there are different views on 
nifty wave analysis at current level. Investors  should cautious about
 5422 level. Market may reverse from that level. If reversal does
 not come at that level expect nifty 100% recovery in this month. 

What are the signals which indicating reversal may happen from 
5422 levels?

1. On daily charts RSI and stochastic are overbought.

2. On weekly charts slow stochastic are in overbought.

3. Nifty will acheave 76% Fibonacci level.

4. One year weekly long term falling trend line is coming near 5422 
level.

These all are indicating 150-200 points reversal may come from 5422
 level into the system.

Overall trend is bullish.

Enjoy trade and trade without being aggressive, you may reach 1 lot
 to 32 lots of nifty in just 20

 months.

Good luck.

NIFTY WAVE POSSIBILITY

CLICK ON CHART FOR LARGER VIEW

NIFTY X-RAY REPORT FOR 04 JULY

 NIFTY X-RAY REPORT FOR 04 JULY
  LAST DAY SNAP SHOT:-
 Real estate, metals and banks help the market close in the green after a lackluster session which saw the indices trade flat for most part. The range for the day was a mere 40 point with infrastructure keeping the market down. Sensex closed at 17425, up 26 points and Nifty at 5287, up 9 points from the previous close. CNX Midcap index was up 0.6% and BSE small cap index was up 0.8%. The market breadth was positive with advances at 893 against declines of 560 on the NSE. Top
CURRENT TECHNICAL SITUATION :-
FII bought nifty future worth rs 416.35 and open interest increased by 2.9% indicating more longs have entered into the system.
Nifty 5400 call added fresh 510,800 shares in open interest which is highest addition in calls side.
Nifty 5300 put added fresh 479,150 shares in open interest which is highest addition in put side.
Nifty 5300 call added fresh 306,550 shares in open interest.
AS per above option data indicating that 5300 and 5400 calls have been written confidently. today total calls open interest is up by 4.2%. put open interest increased by 3.2%.Today call have written much than puts. 
There is distributed views according to option data.
As per Daily and weekly EOD charts Nifty is in overbought zone may give 100-150 points correction any days any time before going 5400 level, I expect. India vix index is at 18.56 it is almost at low indicating market may reverse any day.
Longs player be cautious at this level and can book profit around 5360 level.

NIFTY CHART ANALYSIS

 

CLICK ON CHART FOR ITS LARGER VIEW.

NIFTY X-RAY REPORT FOR 03 JULY.

 NIFTY X-RAY REPORT FOR 03 JULY.
LAST DAY SNAP SHOT:-
The markets traded range bound throughout the day and closed flat. Realty, consumer durables, capital goods and banking were the biggest gainers in today's session while FMCG and auto were the biggest losers. The Sensex closed at 17399, down 31 points from its previous close, and the Nifty closed at 5279, no change. The CNX Midcap index was up 1% while the BSE Smallcap index gained 1.1% in today's trade. The market breadth was positive with advances at 974 against declines of 481 on the NSE.
CURRENT TECHNICAL CONDITION:-
FII sold nifty future worth rs 41.97 cr and open interest increased by 1.7% indicating they have partial booked profit in nifty future.
Nifty 5400 call 5269550 shares standing with highest open interest with addition of  661350 new shares in open interest.
Nifty 5300 call added 669,300 new shares in open interest and 5300 put added 254,850 new shares in open interest. Nifty 5200 put seen highest addition 853,400 shares in open interest.
Overall total call option open interest increased by 7.6% and total put option open interest increased by 4.8%. Nifty future volume decreased by 43.5% today.
As per above data indicating that after a sharp jump market is in mood to take some rest here. As per EOD chart indicating that market is moving towards 5400 where nifty will complete 70% retresment also.  

 LETS GO FROM 1 TO 32 LOTS IN JUST 20 MONTHS.
HOW WILL IT POSSIBLE AND WHAT WILL BE INCOME ?
Only 250 points per month in nifty future may take you to 32 lots in just 20 months.
How?
Lets understand this with a table below. I have made each 4 months slab.
MONTHS-LOTS- CAPITAL- POINT/LOT- INCOME/PM
0 to 3------01--------50000-----250 x1=250 -----12500.00
4 to 7------02----- --100000 ---250 x2=500------25000.00
8 to11-----04--------200000----250 x4=1000--- -50000.00
12to 15----08--------400000---250x 8=2000----100000.00
16 to 19---16--------800000----250x16=4000----200000.00
20 to 23---32-------1600000---250x32=8000----400000.00
250 points can acheave every month easily without being hectic and aggressive. Without taking too much risk of your capital. Small investors who come into stock market by carrying a dream that they will earn money, this plan is famous among them in India. Protect your capital and earn handsome money.
This is the only plan which may take you upto 4 lac per month income in just 20 Months with investment of Rs.50000.00 only.
Do you want to wait or you want to subscribe choices is yours.

SUBSCRIBE IN NEW BATCH STARTING FROM 6 JULY 2012

NIFTY X-RAY REPORT FOR 2 JULY.

 NIFTY X- RAY REPORT FOR 02 JULY.

LAST WEEK SNAP SHOT:-
The markets closed with substantial gains last week with all sectoral indices closing positive. The Sensex was up 2.7% and Nifty also gained 2.7% over the week. The CNX Midcap index closed with 3% gain, BSE smallcap gained 2.2% while the Bank Nifty closed with 3.2% gain. The BSE Metal closed with 4% gain, BSE Oil & Gas was up 2.5% and BSE Power closed with 4.75% gain over the week. The top Nifty gainers during the week were Tata Power, Jindal Steel, ICICI Bank and Maruti Suzuki while the biggest losers included Cairn India and BPCL.
LAST DAY SNAP SHOT:-
The markets made robust gains on Friday with all sectoral indices closing in the green. Capital goods, power, metal and banking were the best performers in today's session and realty, auto, consumer durables and FMCG, too, gained significantly. The Sensex closed at 17430, up 439 points from its previous close, and the Nifty shut shop at 5279, up 130 points. The CNX Midcap index was up 2.1%.  The market breadth was positive with advances at 1093 against declines of 379 on the NSE. The top Nifty gainers were Jindal Steel, Tata Power, Sterlite Industries and BHEL while the biggest losers included Cairn India, BPCL and Coal India.  
FII bought 65277 contracts of nifty future worth Rs.1568.34 cr and open interest increased by 142.80%, indicating fresh long addition into the system.
Nifty 5200 put added 2,281,100 shares in open interest.
Nifty 5300 put added 1,148,600 shares in open interest.
Nifty 5400 put added 666,400 shares in open interest.
Nifty 5400 call added 2,098,450 shares in open interest.
Nifty 5300 call added 329,250 shares in open interest. All this option data indicating fresh long have been made into the system. 5400 call has highest open interest in call side. Indicating that nifty will face resistance at 5400 level in near term.
Market has given robust jump on friday, and no unwinding from 5300 call and it is highly overbought on hourly and half hourly charts so retesting of 5240-5250 level is also possible before going 5400 in near term.
According to option data no need to jump to much. We may see once again a range bound session till at least first half of July. range would be 5100 - 5400.
As per Nifty EOD charts market is showing strong bullishness and Nifty will touch 5415 level very soon.
As I have discussed earlier about 5217 level. Market has jumped this level on Friday which was close on  daily, weekly, and monthly basis, now suppose that if Nifty does not close below this level on monthly basis expect bull month rest of month of 2012. Under this situation 6000-6300-6500 can not be ruled out.