The Nifty formed another Doji pattern today after moving in a narrow band of 50 points, indicating indecisiveness among participants ahead of Christmas holidays in US and European markets. The index closed below its crucial trendline support level of 5,050, while maintaining its 50-day daily moving average (DMA) support at 5,000.
According to a technical analyst at Edelweiss Research, the reversal from 50 DMA depicted that the index still remained range-bound. A rally above the 20 DMA level of 5,078 would indicate further rise, while a close below 5,000 would be considered a sign of weakness.
The Nifty December futures continue to trade at a discount of 1-2 points to the spot, indicating profit-booking. The intraday trading data for the December futures show a change of hands among traders and profit-booking from bull operators as the Nifty shed 1.07 million shares in open interest through sell-side trades. However, the trading pattern in the last few days suggests that bears are waiting for an opportunity to cover their short position as they expect fresh correction in coming days. Foreign institutional investors (FIIs), though net sellers in the index futures in the last couple of days, are not creating fresh shorts but have unwound their long position.
Unwinding is visible in 4,900-5,200 puts in the form of short-covering as traders expect a range-bound market going ahead. The 5,000 put witnessed a change of hands as this put option added 146,300 shares in open interest despite a trading volume of 13.86 million shares as traders expect the Nifty to trade below the 5,000 level going forward. Similarly, the change of hands was seen for the 5,100 call as this call added an open interest of 44,650 shares despite a trading volume of 15.16 million shares. This means traders expect the Nifty may not recover from the current level and may face strong resistance above the 5,100 level.