F&O Outlook: Nifty to trade below 5,000

The Nifty finally cracked below its trading range of 5080-5182 and closed convincingly below the weekly support level of 5,050 on profit booking. We had indicated that due to indecisiveness among participants the support of 5080 will be broken this week. Going forward, we may see fresh sell-off as the Nifty December futures closed at discount to spot and also shed 161,750 million shares in open interest indicating profit booking.

The open interest positions in the Nifty puts suggest that the index has strong support at the 5,000 levels, but trading volume in the 5,000 put in the last few trading sessions suggest that OI build-up was mostly through buy-side trades. Also the 4,800-5,100 puts together shed 1.22 million shares in OI mostly through buy-side trades indicating that participants expect the 5,000 levels likely to be broken in coming days.

The Nifty saw a sustained down move throughout the day after a positive opening. The day was marked with selloff in major heavyweights. Banking stocks were the major losers on weak advance tax numbers and likely rate hike. Reliance Industries also lost ground as according to Edelweiss Research market report, the company was looking to surrender six blocks in KG D6.

The intraday trading volume in the Nifty December futures was mainly in the form of short covering as Bloomberg data suggest more buy side trades all throughout the day. However, as per NSE TAME-LITE trading data, down side trades accounted for 68 per cent of the total indicating profit booking by bull operators.

The options traders were seen building fresh short positions at the 5,100- 5,200 calls (OI up 1.45 million shares) as participants expect the Nifty to face strong resistance above these levels. Interestingly the 5,000 call options traders expect the Nifty to move below 5,000 levels as the 5,000 call witnessed trading volume of 1.94 million shares and added 373,850 shares in OI mostly through sell-side trades.