The Nifty failed to hold the 5,000 level and closed at the 4,959 on Friday. The daily Relative Strength Index (RSI) has slid further away from its trigger line, indicating caution. The October futures was volatile on Friday, testing the upside breakout level of 5,010 and the downside breakout level of 4,910. It is important for the Nifty futures to trade above the 5,010 level for an upside breakout and maintained its support of 4,910 for a downside breakout.
Trading data on the futures & options (F&O) segment suggest that the Nifty will find strong resistance above the 5,000 level in near-term as traders are expected to book profits at this level. The support is seen around the 4,900 level and so a rangebound trading is expected next week.
The Nifty October futures were trading at a premium to the spot, indicating that bulls continued to hold their long positions. However, traders were not building fresh positions as the futures on Friday added 35,000 shares in open interest (OI) despite an intraday build-up of 1.43 million shares.
The Bloomberg data suggested that the traders were covering their short positions when the Nifty was trading below the 4,950 level, while fresh short positions were created above the 4,980 level. This meant that traders expected the index to get support below the 4,950 level and face resistance at around the 5,000 level. According to Bloomberg data, traders were selling 5,100-5,300 strike calls as they expected the index to trade below these levels. Traders were writing 4,900-4,800 strike puts and buying the 5,000 strike put as they expected the Nifty to get support at around 4,800-4,900 levels and resistance above the 5,000 level.
Foreign institutional investors (FIIs) seemed to have booked profit in index futures on Friday as open interest in the index declined despite the higher sell-side trades. FIIs have created fresh short positions in stocks futures as OI in stock futures increased by 2.1 per cent, mostly through sell-side trades. However, these investors were net buyers in index options.