Indecisiveness among participants continued as the Nifty once again closed in a Doji pattern after flirting with support of 5,000 in the morning. The Nifty closed below the trend-line support of 5,050, which indicates fresh correction and loss of support at 5,000. According technical analyst Gautam Shah of JM Finance, the next major support is at 4,930 and a close below this will lead to much deeper correction.
The Nifty December futures saw profit-booking as they shed 1.63 million shares in open interest and closed at a discount to the spot index. Bloomberg data suggest short-covering around 5,022 as 56 per cent trades changed hands at this level, mostly through buy-side trades.
The bears were expected to have initiated short positions around 5,052 as 44 per cent trades changed hands at this level through sell-side transactions.
Although the Nifty has corrected sharply from higher levels, selling pressure or fresh short build-up from foreign institutional investors (FIIs) was not visible. The FIIs’ open interest positions in the last few trading days suggest that they have taken short positions in stock futures and booked profit in index futures. This means there is a possibility of stock-specific price correction with benchmark indices likely to be range-bound.
The 5,100 and 5,200 calls added significant open interest through sell-side trades, which indicates strong resistance at these levels. Nevertheless, these together hold 40 per cent open interest (14.32 million shares) in call options. The significant development in the past few trading session is that the 5,000 call has been adding open interest through sell-side trades. This is a clear indication that the Nifty may not hold this level.
The short-covering continues at 5,000-5,200 puts as open interest in these has declined in the last few trading sessions, mostly through buy-side trades. The support remains at 5,000, which can go down around the 4,900 levels in the near future.