The Nifty April futures faced strong resistance in the previous day’s initial balance (IB) range (5,864-5,923) and closed below the support level of 5,757 on account of fresh sell-off in technology and banking sector stocks. We had earlier indicated strong selling pressure in the IB range and support below 5,757. However, the Nifty broke below the support level on account of the continued selling pressure from the other time-frame traders.
The value area (5,814-5,902) saw 32 per cent volume from floor traders, mostly through buy-side trades. But the volume was not good enough to hold the Nifty at an upside, on account of selling pressure from other time-frame traders. The Nifty closed below the value area due to sell-off. The significance of a market trading outside the value area is an out-of-balance market where the value area is being rejected. When the value area is rejected, it is clear that shorts are attempting to influence the market.
The Nifty April futures closed at a five-point premium to spot and added 1.88 million shares in the intraday trades through sell-side trades above 5,880, which indicates build-up of short positions at the higher level. The volume-based short covering was seen below 5,760, but that was not enough to improve the market sentiment. The market picture chart points towards a price-based selling around 5,632 and volume-based support around 5,612. However, there is a downside risk of 5,557, if it slips below the volume-based support.
The spot Nifty could move down around 5,632 and upper-level resistance is seen at 5,814. The Bank Nifty is expected to move down around 11,300. State Bank of India is expected to move down around 2,695, while ICICI Bank may get support at 1,072. The weakness in Infosys Technologies is expected to continue with the price and volume-based support around 2,860. Reliance Industries is expected to get support at around 1,001.
The options traders covered short positions in the 5,800-5,900-strike put options, as they expect the Nifty to see some more correction in the near future. The 5,800-5,900-strike call options together saw fresh short positions of around 3.3 million shares. The traders also build-up short positions in the 5,700-strike call options by adding 1.6 million shares in the open interest through sell-side trades. This means the Nifty may not hold 5,700 in the near future.