The S&P CNX Nifty closed the week on a negative note after five consecutive weeks of gains. The index lost almost 100 points on a week-to-week basis to end at 4430, which is below the crucial support level of 4500.
The 4500 mark was the 10-DMA (daily moving average). The Nifty now has a strong support at the 20-DMA mark, which is 4395. According to a technical analyst at Ambit Capital, a close below this 20-DMA level would drag the Nifty towards 4180.
The sharp correction from the week’s high of 4660 hit on Monday to a low of 4425 on Thursday is attributed to the unwinding of long positions in index futures and build-up of short positions in stock futures by the foreign institutional investors (FIIs). The FIIs reduced their exposure in index futures to the extent of 40,000 contracts and added 25,000 contracts in stock futures.
The Nifty August futures premium, which had gone up by over 35 points at the beginning of the week, has now come down to a modest six points. These futures also shed open interest of 1.74 million shares over the week. The decline in premium, coupled with a fall in the open interest, indicates that derivative players squared off their long positions.
There are weak signals from the option data as well. The Nifty PCR OI declined from 1.23 to 1.15 due to unwinding of puts and addition of call options. The put option writers covered their positions at the 4100, 4300 and 4400 strike prices, which goes to show that the Nifty may trade below 4400 levels in the days ahead.