The bears have tightened their grip on the market on Monday, after the bulls failed to forge ahead of 5,760 on Friday. Thus, bulls have surrendered advantage of the rally from a low of 5,190 and its break above earlier resistance at 5,680. The Nifty July futures settled at 5,620, below the most crucial support level at 5,635 and hence, the market has now gone into weaker hands.
There is a strong possibility of the Nifty futures moving below 5,600 on Tuesday, with volume-based support around 5,580. No wonder, the options traders have covered short positions in the 5,600-strike put options and build-up short positions in the same strike call options.
The Nifty futures may struggle to hold 5,580 in the next few trading sessions and may move below 5,550. But, the trading pattern in the last two days hints at a price-based support around 5,530. The futures settled below the lower band of value area (5,620-5,645) with 80 per cent volume above 5,620 indicate selling pressure from other time-frame traders. The initial balance range (5,636-5,658) saw change of hands and strong sell-side volume from top traders, and hence, we should expect strong resistance above 5,636.
The market on Monday saw a strong selling initiative as it opened and moved considerably below the previous day value. When the market opens and stays below the value area, it should be viewed as a strong bearish signal. Many times, this type of trading activity is a result of longer time-frame traders and institutions that have lots of selling to do and hence pressuring prices for the trading days. According to value area basics by Market Delta, the best strategy on a day exhibiting initiative selling is to sell bounces until proven wrong.
The Nifty July futures settled at par with spot and added 217,450 shares in open interest mostly through sell-side trades above 5,636 indicating short build-up.
Infosys, Reliance Industries, HDFC Bank and State Bank of India (SBI) closed on a weaker note and hence we may see fresh selling in these stocks on Tuesday. The upside resistance for Infosys is placed at Rs 2,953 while the volume-based selling may end around 2,850. SBI is poised to go below 2,400 at 2,397 while HDFC Bank may fall around 2,397.