The Nifty moved in a narrow range and closed in a Doji pattern as traders expected the market to move sideways at the current level. The Doji pattern suggests a pause before the storm. Since the Nifty has risen almost 250 points in the last four trading sessions, it can cave in due to profit-booking.
The volume in the derivatives segment fell over 20 per cent as traders ware wary of taking positions at the current levels. Range-bound trading and lack of participation in the futures and options segment suggest that the Nifty is in for sharp correction, maybe immediately on reaching 4,850-4,900 levels.
The advance to decline ratio remained weak at 20:30 but the index maintained its winning streak on the back of a smart rally in index heavyweight Reliance Industries (RIL). The RIL stock gained 4.4 per cent to close at Rs 2,167 on short-covering. The build-up in open interest in call options suggests resistance at Rs 2,190 levels.
The Nifty September futures moved in a narrow range on lack of participation. The futures added 1.98 million shares in open interest intra-day but only 158,650 shares were carried over.
Bloomberg data suggest profit-booking above 4,812 levels and intra-day short-covering around 4,800 levels.
Options traders unwound positions in 4,600-4,900 calls on expectation that the index might find it difficult to stay above 4,800 levels for long. The 4,800 call shed 216,000 shares and the 4,900 call shed 509,250 shares in open interest, largely on account of call buyers booking profit.
The 4,600 and 4,700 puts saw an increase in open interest, mostly through sell-side trades, indicating strong support levels for the Nifty. The 4,900 put witnessed short-covering from put writers as they expected the Nifty to fall below 4,800 levels in the near future.
