The technical pullback, which begun around 3,918 On Monday, is expected to continue for a few more days with the upside target at 4,100. Resistance is seen at 4,140-4,240 while support is seen at 3,900-3,950.
This indication has come from the futures & options (F&O) traders, who have begun to cover their short positions in index and stocks futures as well as index options.
The Nifty July futures, which closed at a discount of nine points to the spot, witnessed a decline in open interest (OI) by 272,100 shares despite an intra-day build-up of 1.54 million shares.
Bloomberg data indicated that traders covered their short positions during the morning session when the index fell below 3,950.
Fresh buying for long positions was seen at 3,960 at the close.
Siddhartha Bhamre, equity and derivative analyst at Angel Broking, expects a bounce-back from the current levels and says traders should cover short positions in index futures at 4,000-4,050.
The market has already corrected by 17 per cent from the recent high and 13 per cent after the Budget and hence there is little room for the market to go down further, says Bhamre.
The 4000 and 4100 call options added significant OI, largely through buy-side volumes, as traders expect the Nifty to move above 4,100 soon.
The 4,200 call also witnessed unwinding of short positions and fresh long build-up. We may expect the bounce-back moving above 4,200 soon.
Options traders booked profit at 4,000-4,300 strikes puts on expectation of a technical pull-back from the current level.
The OI in the 4,000 strike put was down significantly by 723,550 shares, mostly through buy orders. This means there is a possibility of the Nifty opening above the 4,000 level On Monday.
