The Nifty staged a pullback from around the 50 per cent retracement level (4,220-4,245) and closed at around the 38.2 per cent retracement level of the rally from 3,790 to 4,650. This technical pullback was on a thin volume in the cash and derivatives segments as traders were wary of fresh positions ahead of the August series expiry.
For the last couple of weeks, the index has been trading in the range of 4,625 to 4,250 and is currently trading near the lower end of the range. It is very difficult to predict the index movement for the next week on account of lukewarm rollovers. The intra-day momentum indicators are oversold and hence we may see a minor rebound when the market opens on Monday.
With only four days to go for the expiry of the August series, the open interest (OI) in Nifty futures is lower at 36.02 million shares compared with 39.88 million shares during the same time last month. The rollovers in September contracts are considerably weak at 16.60 per cent compared with 23.86 per cent last month.
Foreign investors, who have been net sellers on the cash segment, seem to have covered long positions and have formed fresh shorts in index and stock futures. They have taken these positions because FIIs' open position in index futures has decline by 10 million shares since the beginning of the August series, while it has declined by 67,000 contracts in stock futures. The Nifty PCR OI (put-call ratio of the open interest) continues to be below one, indicating that the market is in an oversold position. However, the maximum put OI exists at the 4,300 strike (PCR of 1.38), while the call OI has been higher than the put OI above the 4,300 strike price. This suggests that the index has support at 4,300 and resistance above the 4,300 level.