As expected, the Nifty closed around 5,400 on short-covering, after first slipping below support levels and recovering from there. The weak opening for Dow Jones and the European markets hinted at a soft opening for the domestic markets. The point-of-control (PoC) – the price level where the market has spent the most time trading – suggests a price level of 5,347 in the future.
However, trading patterns in the Nifty futures over the last couple of sessions show short-covering below 5,400. According to time-priced opportunities (TPO) data, any upside above 5,400 is expected to be used for unwinding of long positions.
The Nifty September futures saw a gap-down opening due to the weak global markets. However, participants made use of the weakness for short-covering. As a result, the Nifty – as indicated in this column – closed at 5,402 after recovering from an intraday low of 5,356. Intraday trading volume indicated a change of hands below 5,385 and sell-side trades at the initial balance (5,385-5,405) — the price range principally established by the liquidity providers. The initial balance refers to the first two TPO time periods of 30 minutes each.
The September futures closed at a premium to spot, but there was no fresh addition in open interest (OI). This indicates that there was some unwinding of short positions at lower levels.
The trading volume in the Nifty options hints at short-covering below 5,400 and profit-booking above 5,460. Traders bought the 5,200-5,300-strike put of the September series to protect themselves from any downside. The 5,400-strike put witnessed profit-booking at the index level of 5,365-5,385 and short-covering above the index level of 5,385. This means any downside below 5,400 is likely to protect and be used for short-covering. Also, there was significant unwinding of short positions in the 5,500-5,600-strike puts as participants expect strong resistance for the Nifty above 5,500.
Among stocks futures, Reliance Industries is expected to slip below Rs 900, based on price projections on the basis of TPOs. The strong sell-side trade above Rs 932 level also indicates limited upside from the current close of Rs 919. State Bank of India witnessed multiple distribution of PoC, indicating difficulties in setting a price for positional trades. The September futures may find difficulties in climbing above Rs 2,777, according to TPO data.