Thursday’s significant rise in open interest (OI) in the 5,400-5,500-strike put options indicates that the Nifty is poised to cross the 5,500 level before the expiry of the July series. Nevertheless, the market moved up as expected with both benchmark indices – the Nifty and Sensex – closing at new 52-week highs on short-covering and strong global markets.
The trading pattern in Nifty futures and options and key stocks futures suggests the Nifty may open on a strong note on Friday. The Nifty July futures shed 1.28 million shares in OI, while the August futures added 0.92 million shares. This means there was some short-covering in the July futures, while the August series saw some long rollovers.
The 5,400- and 5,500-strike put of the July series together added 2.2 million shares in OI, mostly through sell-side trades, while the 5,400-strike call options shed 1.79 million shares through buy-side trades. From this trading data (pertaining to the index futures and options), one can infer that the market is likely to remain firm with support base rising above 5,400.
The market picture chart shows 70 per cent of the price action took place below the midpoint level of 5,417, which gives a lower-end price projection of 5,317. However, with over 40 per cent of the volume struck above 5,430, the Nifty can potentially reach 5,527 in the near future. Overall, sell-side trades were higher than buy-side trades, which signifies profit-booking. The Nifty closed significantly above the 5,400 level, driven by a sharp surge in volumes with 53 per cent contracts changing hands in the last 90 minutes of trade.
Projecting Friday’s price ranges can be done a day before now by using the price projection methodology developed by the legendary trading model designer and technician, Tom DeMark (TD). In the TD range projections, we have to take open (O), high (H), low (L) and close (C) of the day. The math behind the indicator is that, if the closing level is higher than the opening level, then Friday’s projected high is X-L.
If the closing level is lower than opening level, than Friday’s low is X-H. The X can be arrived by using the following function:
If C>O, then X=(H+H+L+C)/2. Then X-L=Friday is the projected high and X-H=Friday is the projected low.
If C If C=O, then X=(H+L+C+C)/2. Then X-L=Friday is the projected high and X-H=Friday is the projected low. Using this formula, the projected high for the Nifty is at 5,495 and low at 5,411.