Markets may see correction

F&O OUTLOOK

The markets were not able to sustain above the critical S&P CNX Nifty level of 4,530 spot and closed almost near the day's low. The Nifty September futures contracts closed below 4,500 at 4,480.

The open interest in the Nifty September futures contracts was 17.81 lakh shares, while the discount increased from 11 points to 29 points. This indicates the creation of short position by bears at higher levels.

The markets on Friday provided the much-needed breakout as the Nifty spot crossed the critical level of 4,530 to top at 4547.75. However, the Nifty could not hold the crucial levels and closed near the 4,500 support level.

According to Kamalesh Langote of vfmdirect.com, this behavior, coming on a Friday, is not encouraging as a breakout should have normally led to fantastic gains and set the mood for the market next week.

On the flip side, the markets are still holding at their support level of 4,500 spot. This level provided resistance and limited any upside during the week. Looking forward, the break of 4500 will invite correction.

The two-day and five-day swing and trailing stop losses are pegged near 4,450. The break of 4,450 on a closing basis will require exiting longs and considering shorts. A close below the 4,450 level may lead to a correction and we may be back to 4,000, the starting point of the current rally.

The put-call ratio of open interest in Nifty options remained unchanged at 1.57 as put options added 12.88 lakh shares while call options added 8.07 lakh shares.

The operators are writing out of the money call options and put options while covering in the money positions. The 4,600 call options added OI of 2.17 lakh shares, indicating that the call writer does not foresee the Nifty crossing a new higher level.

However, operators have bought 4,500 strike price call options for Rs 87.65 premium. The operators added OI of 1.32 lakh shares at 4,400 put options, indicating a support base for the Nifty in case it fell below the 4,450 level.