The market is in a bearish mode and the 3,800 level for the S&P CNX Nifty is no longer safe. There are indications that the Nifty could trade below 3,800 on Monday and is likely to revisit its September-30, intra-day, 52-week low of 3,715. The support for the Nifty is seen at 3,700 and 3,650 thereafter. However, the bearish view will be negated if the index closes above 4,000 next week.
According to a technical analyst at Motilal Oswal, the Nifty broke the crucial level of 3,940 (38.2 per cent retracement level of the fall from 4,303 to 3,715), though it managed to close above the important support level of 3,800. The index has bounced back from these levels thrice, indicating the importance of support at these levels. The daily Relative Strength Index (RSI) has turned downwards from its trigger line, indicating selling pressure at higher levels.
The world markets remained weak despite the US Congress’ approval of the $700-billion bailout package. The Dow Jones Industrial Average and the Nasdaq Composite Index fell 1.5 per cent each on Friday as the government reported the largest monthly job loss in five years. The unemployment rate held at 6.1 per cent, a five-year high, with payrolls having fallen by 760,000 this year, the US Labor Department said.
Foreign investors remained net sellers last week in the cash segment with a net outflow of Rs 2,412 crore. Domestic institutions also showed some resistance and slowed down their purchases, buying shares worth Rs 100 crore in the first two days of the current month. FIIs have increased the open interest in index futures from 436,299 contracts to 521,667 contracts last week mostly through short-selling in Nifty futures.
The Nifty put-call ratio (PCR) of the open interest (OI) for the October contract was at 0.75 on Friday, indicating an oversold position. However, a 96 per cent OI in call options is above the 3,900 strike, indicating that the index has strong resistance above the 3,900 level. Of the total OI in put options, 53 per cent is below the 3,800 strike, indicating that the index has build-up support below 3,800.
