The Nifty maintained its crucial support of 4,220 on Friday, closing at 4,228 while the September futures ended the day at 4,245.8, adding open interest of 1.04 million shares. Though this is a positive trend technically, we expect a 25-50 point gap-down opening for the Nifty as the September futures on the SGX Nifty closed lower at 4,205 on the Singapore exchange. Technically, a loss of support at 4,200 would see the index drift to 4,100.
Friday’s derivative statistics for FIIs show an increase in short positions in index futures by nearly one million shares. This means an increase of one million shares in the Nifty September futures on Friday was entirely on account of the short build-up in index futures of FIIs. This could go against the market and, hence, despite the Nifty closing above the support level of 4220, the market may open on a weak note on Monday.
According to technical analyst Kamalesh Langote of vfmdirect.com, the current market setup shows a diametric pattern with 4,000-3,800 levels in the offing. A diametric pattern is a type of behaviour wherein each successive decline is smaller in price but the successive rally is larger in price. The most important trait of this pattern appears to be that the wave-D is always larger than wave-C and is usually the most complicated wave in the pattern from a visual standpoint.
Langote expects the market to move up for a day or two if the index maintains the 4,200 support. However, this up move may be short-lived and the index may end up with a lower end target of 3,800. The trading in options contracts suggests that traders expect the Nifty to garner support at 4,100 as put open interest at this strike increased sharply by 800,000 shares last week.
However, some traders were seen covering short positions in out-of-money puts on Friday. The 4,000 strike put, though, added open interest of 423,050 shares last week, the order book position on the NSE for Friday show a decline in open interest by 920,900 shares despite a trading volume of 2.67 million shares. Even 3,900 and 3,800 strikes put witnessed short-covering by put writers, indicating that the index may move below 4,000 in the near future.
