The bulls are hoping for a temporary relief next week as both the benchmark indices, the Sensex and the Nifty, closed just above their crucial support levels on Friday. The Sensex maintained support at 14,000 and the Nifty closed above 4,220 at 4,245 on Friday.
However, a fresh build-up of short positions in heavyweights Reliance Industries and ICICI Bank and other frontline stocks in the last couple of trading sessions suggests that the technical pullback seems unlikely.
The trading pattern in Nifty put options also suggests that the index may slip below the 4,200 level and even break the 4,100 and 4,000 levels some time next week. The 4,000, 4,100 and 4,200 strike puts witnessed short-covering from put writers as they believe that the Nifty may not sustain at these levels in the near future.
The 4,200 put witnessed a trading volume of 6.39 million shares, mostly through buy orders. However, there was no rise in the open interest (OI), indicating that buy orders were initiated by put writers. Similarly, the 4,100 and 4,000 puts witnessed a trading volume of 5.331 million shares and their OI increased by 0.14 million shares, which indicates that short positions are being covered.
Ashish Shroff, a technical analyst at Ambit Capital, expects the Nifty to hit the 4,020 level if it closes below 4,200. Next week, if there is any rebound, one should use it as a selling opportunity as the index has closed below all the key support levels and the key averages.
Nifty September futures added OI of 5.08 million shares intraday, mostly through sell orders, indicating a fresh build-up of short positions.
