The Nifty closed below its support zone of 4,400-4,500 on weak global cues and profit-booking. Worries about the pace of the global economic recovery and poor monsoon added to the gloom. Metals, realty and oil & gas stocks led the sell-off. By the close of the Indian trading session, European markets were down over 2 per cent. The 158 declines in Dow futures indicated a weak opening.
A blend of unwinding long positions and formation of some short positions are visible in the Nifty August futures. The Nifty August futures closed at a discount to the spot and added an open interest (OI) of 2.01 million shares. Intraday trading volume suggested a long build-up when Nifty fell below 4,400. The Nifty September futures closed at a premium and added an OI of 607,850 shares, indicating creation of long positions.
The Nifty is expected to face a strong resistance between 4,400 and 4,500 as there was some unwinding in 4,400 and 4,500 puts and a fresh build-up of OI in 4,400-4,500 calls. The OI in 4,500 calls increased by 1.76 million shares, which indicates that the Nifty is unlikely to move above 4,500. The 4,400 call also added an OI of 939,800 shares through a blend of buy and sells.
The 4,500 level, which acted as indicative support for the market in the last two weeks, is expected to face major resistance levels going forward. The 4,500 puts witnessed short covering of 1.02 million shares, mostly from put writers.
The 4,400 put witnessed unwinding of 151,400 shares, mostly in the form of profit-booking from put buyers, while the 4,300 put holds the highest OI among put options, indicating that the Nifty has support around 4,300-4,400 in the near future.