A Doji with long upper shadow on Thursday was aptly followed by a change in trend as the Nifty August futures declined sharply, despite opening at the day’s high on bullish global cues. The August futures on Saturday saw a bearish engulfing candlestick chart pattern which indicates a future bearish trend. The bearish engulfing pattern consists of two candlesticks in which the real body of the second candle cover the first candle’s real body completely. It is expected to change the trend from buyers/bullish to sellers/bearish. However, the SGX Nifty was trading higher at 5,147 on the OTC counter which could lead it to a positive opening on Monday.
The Nifty closed in the red after opening on a positive note as other time-frame traders turned net sellers at the higher level. The sell-off deepened further on the fear of a further increase in borrowing costs on account of higher-than-expected growth in industrial production in June. The market profile for the day suggested responsive selling, with sellers putting there shares on the block as soon as the index opened above the previous value area. This dragged the prices lower right from the opening, and the market remained in the sell-mode.
It was also a net selling day with TPO counts above the point of control (PoC-5,082-5,088) higher at 70 per cent. The market picture chart hinted at volume-based selling for the August futures at around 4,890. However, the pullback was expected to take the index to around 5,111, the MKTP chart suggested. The poor volume in the initial balance (IB) range (5,140-5,181) indicated strong resistance above the 5,181 mark. The buying below 5,080 levels hinted at short-covering at the lower levels.
The August futures settled at an 8-point premium to spot and added 993,500 shares in open interest — most through sell-side trades in the first two hours of trade. Short covering was seen when the August futures moved down below 5,100. Traders bought shares in the morning session following a bullish sentiment in the early hours, but turned sellers post noon, after witnessing selling from other time-frame traders. Options traders covered short in 5,000-5,500-strike put options and initiated a fresh short in the 5,100-strike call, because the current pullbacks seem to be running out of steam.
