Long short update

Here are a couple of observations that can instigate a near term set back. The first one I should have noted in yesterday evenings note, a complete drop off in volume. Between wave iii high and the new high in wave v of the recent rally volumes have fallen by more than half. So apart from the inter market divergences the decline in breadth and participation shows up in volumes.

The second chart I published online and shows the inter market divergence between the Nifty and the Midcap index, the first such divergence since Jan 2020. usually there are many but the higher volatility markets kept these from developing. It does not always mark a major top or bottom. Some divergences are short term in nature but are always advance warnings of possible trend changes and so we pay attention to them.

The put call ratio is so far at a lower high compared to nifty. Of course it can rise with the market. Looking at it from another angle the FII options positions as a % of total options was near a overbought point at the end of wave iii and is now at a lower high as well [bottom indicator on this chart]. So nifty has not moved down yet but if it does these will all amount to negative divergences in wave v compared to wave iii of the move.