The S&P CNX Nifty closed below 4330, which is a 38.2 per cent retracement of the rally from 3790 to 4650. The markets had failed to fill the gap around 4200 on the way up due to the positive opening on July 23. And if the Fibonacci numbers are any indication, the Nifty is headed towards 4220, which is 50 per cent retracement from the recent highs.
The indices traded between the short-term support of 4300 and resistance of 4500 till Wednesday. However, this support was broken on Thursday due to relentless selling in realty, banks, public sector and power stocks.
The 4300 put option witnessed unwinding of short positions. The Nifty PCR OI at the 4300 strike declined to 1.57 from 2.61 on account of fresh call writing.
The trading activity at the strike prices of 4200 and 4100 point to a weak opening tomorrow. There was buying in 4200 put options and unwinding in 4100 put options, indicating pessimism among the market participants.
Banking stocks led the downturn, with ICICI Bank, State Bank and HDFC Bank declining by over five per cent each on a fresh build-up in short positions. ICICI Bank was down 5.85 per cent and added open interest of 2.56 million shares, while State Bank was down 7.6 per cent, accompanied by an addition of 0.68 million shares in open interest.
The Nifty futures witnessed short build-up in the August and September futures contracts. The August futures added open interest of 3.01 million shares and September futures added open interest of 2.56 million shares, while the premium to spot declined from 20 points to four points at the close of trading.