Lack of short covering and creation of fresh shorts in key stock futures resulted in the S&P CNX Nifty closing below 4000 for the first time after July 8. The Nifty October futures added open interest of 2.52 million shares and closed with a modest discount to spot index, indicating creation of short position.
The Nifty closing below the 4000-mark after trading in range of 4000-4300 in the last two weeks is supposed to give an upper hand to bear operators.
A sharp increase in open interest at 3800 strike put in the last three trading days, from 1.16 million shares to 2.38 million, indicates that F&O players expect the index to retrace to its 52-week low once again.
Also, open interest at 4100 and 4000 strikes calls has been more than double in three days, indicating that the index has strong resistance above the 4000 levels.
Key index heavyweight and frontline technology stocks also witnessed creation of fresh short positions. Reliance Industries, State Bank of India and ICICI Bank were down 4-6 per cent, while open interest in these stocks futures increased by around 5-10 per cent, indicating fresh short build-up.
Infosys has declined 11.5 per cent this week with open interest up from 0.5 million shares to 2.30 million.
Technical analysts expect the bulls and bears to continue to balance out each other. In short, they expect sideways market for the coming weeks with downside support at 3800 and upside resistance at 4200. The moving averages are trading above the spot price of the Nifty suggesting that any upmove towards 4200 will result in the index facing selling pressure.
