The Nifty failed to sustain above 5,000 and closed forming a bearish candle on Friday. The support around 4,900, from where it had bounced back in the recent past, will be important for the uptrend in the index to stay intact. On Friday, though the Nifty has closed well above the support level of 4,910, it was below the trend reversal level of 4,980.
According to a technical analyst at JM Financial, a breakdown of the 4,910 support level can take the index to 4,820 in the near future.
Investors sold IT stocks on Friday after IT bellwether Infosys said that the strengthening rupee was a big concern for its earnings. All the three frontline IT stocks — Infosys Technologies, TCS and Wipro — witnessed profit-booking and shorts build-up. In the backdrop of the strengthening rupee, we may see unwinding of long positions in IT stocks going forward.
Traders were seen booking profit in the Nifty futures as well as in-the-money call options. 4,900-5,100 strike calls added almost 2 million shares in open interest (OI), mostly shorts build-up. The 5,000 call added 1.40 million shares in OI indicating that the Nifty will now find it difficult to sustain above the 5,000 level. The 4,900 call too increased OI by 540,200 shares through sell-side trade indicating that traders expect the Nifty to move below the 4,900 level soon.
They were seen covering their short positions in 4,700-5,100 puts on expectation that the Nifty may lose support at 4,910 in the near future with an imminent downside target of 4,750.
The Nifty October futures once again started trading at a discount to the spot and added 0.76 million shares in OI indicating creation of short positions.
Bloomberg data suggest that there were profit-booking above 5,000 and traders were covering their short positions as the index slipped below the 4,950 level. Trading pattern in the last few days in the Nifty futures suggests unwinding of long positions and fresh shorts build-up by foreign investors.
