The Nifty closed marginally above the support level of 4,940 on short-covering at lower levels. The trading pattern in the Nifty futures and options suggests the index may fall below the 4,900 mark soon. The 5,000 call option added 2.24 million shares in open interest (OI), mostly through change of hands and sell-side trades, indicating strong resistance above the 5,000 level.
Participants expect 4,900 may not remain a strong support level in the near future since the 4,900 call witnessed building up of short position as it added 436,200 shares in OI, mostly through sell-side trades. The open interest in 5,000-5,200 calls (accounting for 58 per cent of the total OI in call options) suggests no immediate pullback for the market.
However, the Nifty may get strong support between 4,800 and 4,900 levels as 4,800-4,900 puts together hold the highest OI among put options. A good amount of unwinding was seen in 5,000-5,200 puts, mostly in the form of short-covering and profit-booking as traders expect the Nifty will face strong resistance above the 5,000 level.
The Nifty December futures closed at a discount to the spot and shed 0.60 million shares in OI, mostly on account of profit-booking. The Bloomberg data suggest that bears have covered short positions when the Nifty slipped below the 4,950 level. Interestingly, the traders have taken a bullish view on the market after the current month expiry as the Nifty January series closed at a premium to the spot and has added 1.25 shares in open interest, mostly through buy-side trades.
Technically, the momentum on both hourly and daily charts remains in the sell mode. Analysts at Sharekhan Research expect the weakness to continue. On the lower side, 4,942 remains a crucial support. The Nifty is also trading below the 20-daily moving average (DMA) and 40-DMA, 5,023 and 5,070 respectively, which are resistances in the short run.
