The benchmark indices corrected sharply today on delivery-based selling and covering of long positions and fresh short build-up in index futures as well as in a few heavyweights such as Reliance Industries, State Bank of India, ICICI Bank, Larsen & Toubro and Bhel.
The Nifty October futures and Reliance Industries witnessed decline in open interest (OI), while ICICI Bank and State Bank witnessed rise in OI suggesting fresh short build-up. Nevertheless, the Nifty closed just above the trend-line support level of 3320, which is 61 per cent retracement of the current rise from 3200 to 3650.
According to technical analyst Ashish Shroff of Ambit Capital, the index has strong support in the range of 3200 to 3650 and any rise from the current levels could take the index back to 3700. If the index closes below 3320, then it can retest its previous low. The trading pattern in options contracts suggests that F&O players expect the index to slip below 3300 levels as they were seen covering their short positions in 3000 and 3400 strike puts.
Call writers, who were covering their short positions at 3300-3500 strike call options till yesterday, were seen writing the same strike calls today. This suggests that options traders believe that market does not have strength to hold at 3300 levels. Also, a significant buying in 3100 strike put, (open interest increase by 56 per cent) suggests that the Nifty may even slip below 3100 levels.
According to Siddhartha Bhamre of Angel broking, there is no follow-up buying from major players on account of a lack of conviction and the liquidity crunch in the financial market.
FIIs have been selling across BRIC (Brazil, Russia, China and India) nations on account of the decline in commodity prices in Brazil and Russia and a significant exposure in the banking sector in China.