The Nifty has encountered stiff resistance at 4600 and support at 4500 in the last two days, with an average settlement price around 4550. The index is approaching trendline resistance at 4500-4550, which is becoming a major resistance zone.
Technically, trendline resistance leads to a correction or sideways movement. The markets are likely to decline to 4200 in case of a break-out on the lower side.
The Nifty closed absolutely flat after trading in a narrow range of 4500 to 4580. The index ended at 4524, a gain of 6 points. The market breadth was almost neutral, with an advance/decline ratio of 1.1:1.
The Nifty August futures closed at 4531.6 and added open interest of one million shares. Profit booking took place in BHEL, Bharti Airtel and HCL Tech, while fresh long positions were seen in Sterlite, Dr Reddy and Tata Motors.
The Nifty is likely to consolidate in the 4420-4580 range, according to analysts. The hourly charts suggest an overbought situation, which could lead to an intraday dip towards 4460 and 4420.
The foreign institutional investors have been covering their short positions in Nifty futures and going short in individual stock futures. While the FII open interest in index futures declined by 21,000 contracts, their short positions in stock futures increased by around 22,000 contracts. This indicates that FIIs booked profits in index futures and created stock-specific short positions at higher levels.
The Nifty PCR OI moved up from 1.30 to 1.36 as call options shed 203,050 shares and put options added 1.21 million shares. Call writing took place above 4600 and put writing was seen at 4400 and 4500 strikes.
