The Nifty closed the day on Wednesday in a Doji pattern after getting support at 4,357. The Doji pattern indicates that a security’s open and close prices are nearly identical.
Firm European markets and a healthy domestic industrial data indicate that the market would open on a positive note tomorrow. According to a technical analyst at JM Financials, the Nifty is forming its bottom at the current levels and any breakout above 4,514 can take the index above 4,700.
Nifty August futures on Wednesday witnessed short-covering during the morning session, while retail traders were seen booking profits when the index started trading above 4,425. The August futures closed with a premium after a gap of five days and added an open interest (OI) of 522,700 shares, indicating fresh long build-up. The Bloomberg data indicated bulk-buying in the afternoon trade when the index recovered from the day’s low and started trading above 4,400.
As per the Bloomberg data, the 4,600 and 4,700 strike calls witnessed change of hands as buyers and sellers were evenly matched. Also, despite a trading volume of 8.68 million shares in the 4,600 call options and 5.45 million shares in the 4,700 call options, the OI declined marginally by 88,150 shares. This means strong hands are buying weaker hands and hence we can expect a sharp pullback from the current level.
The 4,400 and 4,500 strikes calls continued to add fresh OI, mostly through lower-level buying. The call buyers expect the Nifty to consolidate around the current levels before a breakout above 4,500. Profit booking was seen at 4,500-4,700 strike puts, while fresh put writing was witnessed at 4,200 and 4,300 levels.
Going by the trading volume of 10.49 million shares, it’s clear that the 4,400 put witnessed change of hands, though its OI (8,900 shares) rose only marginally. This means 4,400 continued to be a strong support level for the Nifty.