The Nifty faced strong resistance around 5,480 and closed below the crucial trend-line support level of 5,420, which indicates bearishness in the short term. The Nifty has been trading around the 5430-mark for the last couple of weeks and managed to remain above that level due to poor volumes below 5,440.
The Nifty closed on Monday below 5,420 with 68 per cent of the traded volume executed below 5,440. The weakness in global markets and trading volume in the last two hours’ trading session hint at a weak opening on Tuesday. The time-price opportunity (TPO) data in the last two and half hours’ session suggests significant weakness, with the Nifty poised to trade below 5,400 in a day or two.
However, the recovery in the August futures – from the day’s low of 5,393 to around 5,420 – indicates the 50-share index may get volume-based support at around 5,405. The trading pattern in the Nifty August futures also shows a weakness, with volume-based support at 5,362.50. Technically, the Nifty is expected to retrace at least 38.2 per cent to 5,300.
The Nifty August futures closed at a discount to spot without adding meaningful open interest (OI). However, the futures saw heavy buy-side trades at lower levels and short-covering at higher levels. The August futures, though, has been trading in the range of 5,440-5,490 in the last couple of weeks and holds an OI of 33.52 million shares.
This makes it difficult for the bulls to control the markets. Interestingly, the 5,400-5,600-strike calls account for over 75 per cent of the total OI in call options, suggesting resistance above 5,450. The Nifty may not go significantly below the 5,400-level as this strike put holds an OI of 9.02 million shares. The unwinding of short positions in the 5,400- and 5,500-strike put indicates an upside resistance and a strong possibility for the Nifty to trade below 5,400. The 5,300-level is expected to act as a strong support, given that there is an OI of 11.45 million shares in the 5,300-strike put.
