The Nifty opened on a firm note on Friday, faced resistance at 4,130 and closed near 4,000 on profit taking in oil, capital good, power and realty stocks. Technical support is expected to play a role next week for any pullback as the daily Relative Strength Index (RSI) at 37 is nearing the oversold zone.
The supply zone for the Nifty is expected to be around 4,141-4,230. Thus any pullback will create more short positions in the coming week. Markets in Europe and the US closed the Friday session by forming a Doji pattern, indicating uncertainty and a possible pause before the downturn.
Foreign institutional investors’ (FIIs) position in the derivative segment suggests short covering in index as well as stocks futures. FIIs went for significant short covering in index futures on Thursday and again on Friday when the Nifty fell below 4,000. Their open interest (OI) position in index futures increased by 10,360 contracts on Friday, indicating creation of long positions.
Trading volume in the Nifty futures and options on Friday suggests that the index has now strong support near 3,950 and resistance above the 4,140 level. The 4,100 call added an OI of around 1 million shares and the 4,000 call added an OI of 577,200 shares, mostly by bears. Put writers were seen unwinding their short positions at 3,900 and 4,000 puts. This means the support of 4,000 is likely to broken and the Nifty may fall below 3,900 in the near future.
For the last 5 trading sessions, the benchmark indices are making ‘lower lows’ as well as ‘lower highs’, which according to technical analysts at HDFC Securities shows a bearish undertone. Unless indices stop making new lows everyday, the rally cannot materialise. For the Sensex, the 13,519 level is acting as support level which is keeping the hopes alive for bulls. The Sensex, however, closed at 13,504 and, hence, we may see fresh correction next week. The next support for the Sensex is expected to be at 12,715.
