Fear of another bout of sharp correction was clearly noticed in the futures & options (F&O) segment with options traders covering their short positions in the out-of-money puts.
Profit-booking was seen in the 4,400 and the 4,500 puts, while unwinding of shorts was seen in 4,300, 4,200 and 4,100 strike puts. This means traders expect the Nifty to correct further by around 150-200 points in the coming days.
Short positions in most index heavyweights triggered a 3.9 per cent fall in the Nifty futures. Data showed that traders were willing to sell at higher levels but there was no short-covering at lower levels.
The Nifty June futures closed at 4,414 levels, while the average traded value of the index was at 4,518. This means short-sellers are waiting for a fresh correction before covering their positions.
In these columns, we had already indicated that traders were building short positions in index heavyweights during the last couple of days and hence the market was in for a sharp correction.
Fresh short build-up was seen in Reliance Industries (RIL), State Bank of India (SBI), ICICI Bank, Tata Steel, DLF and Suzlon Energy.
Now, the post-election uptrend has come to a point where the bulls will be tested. On Friday, the Nifty had corrected from an intraday high of 4,640 to close at 4,592, while today it fell sharply from a high of 4,611 to close at 4,430.
Importantly, the Nifty has broken the support of 4,450 on a closing basis and hence we are in for a short-term decline.
According to technical analysts, the bigger picture hints at a substantial upside of around 25 per cent from current levels. However, that can happen only after a healthy, short correction in the next two-four weeks.
