It is easy to understand the market dynamics with Nifty spot and Nifty future prices as one gets the pointer before hand to show the likely state of affairs in the market in the forthcoming days ahead.
Points to understand are as given below:
When discount widens between spot and Nifty future price i.e. spot price is higher and future price is lower means that bearish mood is prevailing in the market and bears are in control in market in forthcoming days. If this premium is more than 40 points means that corrections is in offing.
When discount widens between spot and Nifty future price i.e. spot price is lower and future price is higher means that bullish mood is prevailing in the market and bulls are in control in market in forthcoming days. If this premium is more than 40 points means that corrections is in offing.
On the day of Expiry
Premium and Discounts between spot Nifty and future is almost zero at the closing date of expiry which is last Thursday of every month.
Can above Analogy be applied to Stocks?
Yes, this analogy can be applied to stocks but with a rider that one should know that if any dividend or any other such announcement is already made which may be impacting the price.
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