Markets have been forming lower lows and lower highs (a falling wedge) since the Nifty hit the 3,600 level. According to a technical analyst, this up-and-down pattern can continue for some time and frustrate traders’ positions.
A falling wedge is a bullish pattern, specially when formed after a strong correction, says Kamalesh Langote, a technical analyst at vfmdirect.com. The wedge is valid as long as markets trade within the set range.
The markets on Monday snapped a four-day decline on the back of a smart rally in technology and bank stocks. The top four technology stocks, Infosys Technologies, Satyam Computer, TCS and Wipro, rose between 8 and 10 per cent as a result of delivery-based buying on the cash segment and a fresh build-up in long positions on the derivatives segment.
Among the bank stocks, ICICI Bank witnessed an unwinding of long positions as its October futures witnessed a modest rise in the open interest (OI), while the stock was up by 5 per cent. The index heavyweight, Reliance Industries, witnessed an unwinding of long positions as its October futures closed at Rs 1,329 from an intra-day high of Rs 1,390.
The Nifty October futures closed with a premium of 20 points and added an OI of 273,650 shares. The November futures too showed an impressive rise in the OI of 757,200, while its premium to the current month Nifty futures has increased to 22 points from 16 points on Friday. This indicates that some players are building long positions in the Nifty on expectation of a near-term technical pull-back. We saw a significant unwinding of positions in in-the-money puts, indicating a short-term pull-back.
