The Nifty closed above 2,700 at 2,736 on short covering in key index heavyweights like Reliance Industries (RIL), Infosys Technologies and State Bank of India (SBI). The Nifty futures, however, remained under pressure and closed with a 25-point discount to the spot, indicating that bears have continued with their short build-up.
Trading by foreign institutional investors (FIIs) in the derivative segment in the last three trading days suggests that they have built up short positions in index futures and selective long positions in stock futures. This trading action of FIIs and the Nifty’s breaching of the important support level of 2,700 intraday indicate that the market is set for a big downside in the near future.
Siddhartha Bhamre, derivative and equity analyst with Angel Broking, expects the Nifty to trade between 2,600 and 2,700, and there could be a bout of profit booking between 2,800 and 2,900 levels. He says that market dynamics have changed from buy on the rise to sell on the rise since it has broken the 2,800 support.
The Nifty January futures witnessed short build-up of 3.92 million shares during the intraday trade, but 840,900 shares were added to the open interest at close. This indicates that bears have covered intraday shorts during the settlement period. The Bloomberg data suggest that 23 per cent shares of Nifty futures changed hands around 2,680 and 2,719 levels through buy orders, indicating unwinding of intraday short positions.
Traders were seen building fresh short positions at 2,700 and 2,800 strikes calls, indicating that they expect the index not to trade above 2,800 in the near future. Unwinding of short positions by put traders was seen above 2,700 strikes puts and fresh buying at 2,600 put, indicating that the index may not hold 2,700 levels and may trade around 2,600 in the near future.
According to technical analysts, despite the fall in the last few trading sessions, markets are still not adequately oversold on hourly and daily charts and, therefore, further downside towards the next big support of 8,500 for the Sensex is likely. A new breakdown from a bearish “Head & Shoulder” pattern is spotted, which calls for 2,500 on the Nifty within a couple of weeks.
