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Open interest & market movement

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(Querist)
05 May 2010 Dear sir\Madam
it is said that when open interest & price are rising market is increasing,when both are falling market is strengthening,when price falling but open interest increasing market is weak, and when price rising but open interest is falling market is weakening.
Why does open interest & Market movement have this relationship?
Thanks in an advance
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CA Shiv

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CA Shiv (Expert)
07 May 2010 yes it is right...
Increase in open interest means there is more buying in the position. Also when the market is moving in the same direction than chances of market moving in the same direction is high. e.g.

Market 5150
Call 5200- cost is 50
Open interest 10 lacs.

Now the market is 5170, the cost is 60 and open interest is 11 lacs.

so we can expect the market to mvoe around 5200 easily.
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