The market trend will remain positive as long as the Nifty holds 3980 on a closing basis and a convincing close above 4150 would signal bullish strength. But the decline of Dow Jones below the 11k mark for the first time since July 2006, will have its repurcussions on the domestic bourses.
The Nifty has a strong support at the 3700-4100 levels, where the put OI accounts for 64 per cent of the total put open interest. It has a resistance at 4200-4500 as the call OI at these levels accounts for 45 per cent of the total call open interest.
Derivatives traders take contrarian views on the markets and therefore a build-up of Call and put OI at certain strike prices indicates resistance and support levels. In the normal course, call buying is positive and put buying is negative for the markets.
The Nifty moved in a range of 3980-4157 till Thursday. But it gave way on Friday, after touching an intra-day high of 4215, due to negative news on the technology, economic and inflation fronts.
The derivatives traders were wary of these developments and squared off their positions. The open interest in Nifty July futures contracts declined by 1.43 million shares as the foreign institutional investors (FIIs) covered their shorts and bulls squared off their long positions.
The FIIs turned positive in the derivatives segment last week as they pruned their short positions in index futures and build up long positions in stock futures. But they remained net sellers in the cash segment, accounting for fresh outflows of Rs 2,221 crore in the week ended July 11.
The FIIs have pulled out Rs 62,076 crore from the bourses, while the domestic institutions (including mutual funds) made net purchases of Rs 45,435 crore in this calendar year.