After a gap-down opening at 5,053, and moving down to the day’s low of 5,013, the Nifty October futures closed in a Doji pattern, as the day timeframe traders turned buyers at the lower level. A Doji pattern is formed when the opening price is the same or very close to the closing price. The Doji on Wednesday had a long lower shadow, which suggests active sellers at the initial stage, but once the selling dried up, buyers took charge to regain losses on the day. The futures settled at 5,055, marginally above support, and saw an unwinding of long positions of around 2.50 million shares.
It is difficult to establish any trend from such a profile, as the Nifty, after opening gap-down, did not fill the morning gap during the next few trading sessions. Nevertheless, buying range extension occurred below the previous value area and, hence, it was a responsive activity from buyers. This is a weak signal. Technically, the gap has to be filled in the next few days or it could mean the current trend would further deteriorate. The technical indicators in the medium- and short-term are clearly pointing southwards.
The technical target on the downside now stands at 4,990, which is 61.8 per cent retracement of the recent rally from 4,725 to 5,151. Any break below that could take the Nifty down to the 4,940 level (50 per cent Fibonacci retracement level of the recent fall).
The global cues remained an important factor for the market momentum, and, hence, it is very difficult to predict the upper or lower price range on the basis of the market picture (MKTP) chart. The MKTP chart suggested an upside resistance at 5,071 and that a volume-based sell-off could lead to a low of 5,006.
Options traders covered short positions in 5,000-5,100-strike put and built up fresh short in the same strike call options. The change of hands seen in 4,900-strike put and uncovered short positions in the same strike call options indicate the participants expect the Nifty may struggle to trade above the 4,900 level in the near future. Strong support is expected to come around 4,800 on the basis of open interest in the build-up of the 4,800-strike in call and put options.