The Nifty on Thursday closed with a Doji pattern, indicating uncertainty among participants. Doji form when a security’s open and close are virtually equal. On Thursday, the Nifty opened at 4,079 and closed at 4,081 after moving in a narrow band of 30-40 points as traders were waiting for an either side breakout to take fresh positions.
The uncertainty also reflected in the futures and options (F&O) segment trading volume, which declined by Rs 13,000 crore. The trading volume in index futures declined by over 200,000 contracts as the Nifty moved in a narrow band, driving away day traders. The index options volume fell by 300,000 contracts as traders saw no fresh benefit by selling options due to decline in implied volatility.
The Nifty maintained the support of 4,050 but failed to close above 4,100, indicating higher selling pressure. The July futures closed with a six-point discount to the spot and shed an open interest (OI) of 838,400 shares from the intraday increase of 1.86 million shares. The Bloomberg data suggested that traders covered their short positions in index futures when the Nifty was trading above 4,075.
The market is expected to open on a positive note tomorrow in the absence fresh short build-ups in index as well a few stock futures. Stocks market in Asia and Europe were up by over 1 per cent each, while the Dow Jones futures were up by over 50 points.
The options traders were seen writing 4,200-4,300 strike calls, but some buying was seen in 4,100 calls. This means we may see the Nifty opening above 4,100 when the market opens for trading. According to a technical analyst at JM Financial, current technical formations can take the Nifty down to 3,700 with immediate support at the 3,950 level. The zone of 4,240-4,300 is now the major supply area in case of any pullback in the near term.