F&O OUTLOOK: Consolidation likely to continue

The Nifty on Tuesday maintained its support of 4,400 but failed to close above 4,500 on profit-booking at higher levels. However, what is considered as a sign of strength, the relative strength index (RSI) has once again come back to 50.

The consolidation is expected to continue for some more time before the Nifty regains its recent high of 4,731.

Technically, on the downside, if the Nifty trades below 4,400 levels going forward, then it is likely to test 4,320 levels, which will be the second retracement level (50 per cent) from the index’s rise from 3,919 to 4,731. On the upside, 4,521 levels would act as resistance.

Nifty August futures on Tuesday witnessed selling pressure when the index started correcting after a decent opening. However, short-covering was seen during the afternoon trade as traders were wary of carrying forward their intraday positions. The August futures, which closed at seven points discount to the spot, lost open interest (OI) of 624,750 shares, indicating unwinding of short positions.

Reliance Industries (RIL) gained in a volatile trading session due to fresh long build-up at lower levels. The August futures closed at Rs 2,003.55 compared to the spot market close of Rs 2,000.40, indicating long build-up. Tata Steel too witnessed fresh long build-up as its August futures traded at a premium to the spot and added OI of 257,468 shares.

Call writers, who were active in the immediate out-of-the-money strikes in the past three-four trading sessions, were seen unwinding their positions at 4,700-5,000 strikes. Fresh writing was seen at 4,400-4,600 strikes calls as the traders expected the Nifty to be range-bound and face a strong resistance above 4,500. The 4,300 and 4,400 strike puts added OI of 572,000 shares each, the highest OI among put options, indicating support levels for the Nifty.