Yesterday (20 June 19, Thursday), stocks like yes bank, relcap, dhfl had a big rally in spot market. I am told this is short covering rally. For this level of short to be covered in a single day there must have been huge shorts in the spot market over many days. But, in spot market equity shorting is allowed only on intraday. Then what explains such existence of short positions?
Also, these stocks are fundamentally and technically week stocks. So why would anyone buy them at those levels?
May be someone can please explain me bit more detail.
These Short positions are in futures segment and not in cash…You can hold short positions in Futures…
Smart Money/Big players/Positional traders look more into Fundamentals than tehcnicals…A Fundamentally sound stock might be technically weak for a while due to management issues,bad results etc but if its fundamentals are strong ,it can bounce back .Smart money always likes to buy them cheap…
Thanks for your reply.
But, why and how the spot prices should get affected by short positions in futures. As expected, after weekly expiry, on Friday yes Bank fell again about 5%. People who had to cover shorts in spot probably new yes Bank would fall again next day.
Can someone point me to good resources where I can understand how futures and spot affect each other and how this plays out on weekly and monthly expiry?
I think because Nifty bounced from crucial support level, people thought now index bottom is made, so they started covering shorts.
Another reason can be few of those stocks are going out of FNO. So they have to close position before month end, so those shorts covered.
And it has nothing to do with weekly expiry, dont expect to find any pattern or holy grail how expiries work. All of this is mostly random and can happen on any day.
Regarding who is buying in cash, or generally who is buying, these kind of moves happen in all stocks which go from 3 digit price to 1 digit price.
Vakrangee doubled many times from lows, Arrow Greentech doubled in between once. Since they are non FNO stocks they took weeks to double. But FNO stocks can go 50-100% in one day so the move in JET, RELINFRA, etc.
Who is buying? Who knows, maybe operator inflating it to trap more “investors”. Thats the reason I think all to-be-penny stocks double in between many times before going to their doom.
Futures represents, price expectancy for the asset in future. If you know, you have a car to sell, that right now is selling for 525K, but would only be worth 500K next month, what would you do?