The Nifty bounced back sharply after finding support around 4,600 levels and closed at 4,770 on short-covering. The Nifty November futures settled at 4,770 compared with the average trading price of 4,680 as almost 66 per cent volume changed hands at an average of 4,650. In the last two trading sessions, we have observed that the Nifty has filled the gap between the closing value and the average value on the following day and moved up. So, if this pattern continues, we may see the index moving down below 4,700 levels tomorrow.
Technically, the Nifty has closed marginally below its trend-line crossover level of 4,780, which is 38.2 per cent retracement of the fall from 5,182 to 4,538. According to a technical analyst at HDFC Securities, crossing of 4,780 levels will be crucial for the recovery to continue around 4,860 (50 per cent retracement of the recent fall). However, trading volume in Nifty futures above 4,725 levels suggests traders are not willing to hold long positions at higher levels.
Intra-day profit-booking rose as almost 15 per cent volume changed hands through mid-value trade. The Nifty November futures added 0.84 million shares in open interest, mostly through a blend of long and short positions. The bulls seemed to have bought shares when the Nifty was trading below 4,700 levels while the bears created fresh short positions above 4,730 levels. This means the Nifty may face resistance above the trendline crossover level of 4,780.
The 4,700 call witnessed short-covering and change of hands and added 0.3 million shares in open interest despite trading volume of 18 million shares. The 4,700 call witnessed short-covering in the morning session, but in the end, the 4,700 put added 0.94 million shares in open interest, mostly through sell-side trades. This means traders expect that the 4,700 level will act as strong support for the Nifty.
