The Nifty closed in a Doji pattern as speculators preferred to wait ahead of another quantitative easing (QE2) in the US.
The pattern suggests indecisiveness and that can lead to significant volatility in the market. The major build-up of open interest in out-of-the money calls (6,300-6,500) and puts (5,800-5,600) in the past three sessions indicates that traders have protected long and short positions. The Nifty November futures has moved in a narrow band of 30 points in the last two days, with volume slowing from over 5.5 lakh contracts on Friday to 3.6 lakh contracts on Monday and 3.10 lakh contracts on Tuesday.
The Nifty is likely to consolidate till the volume-based support of 6,122 is not taken off. On the lower side, it has support at 6,085. The break-out of the higher end will be dependent on aggressive delivery of QE2 by Fed for testing the recent high at 6,260, says J. Moses Harding, head, global markets group, IndusInd Bank. The initial balance range, the first two time-price opportunities (TPO) time periods established by the liquidity providers, saw short-covering in the last couple of trading sessions, hinting at cautious approach by major traders. The Nifty has closed within the value area, which suggests the market is accepting the day’s price range and is in control of the short-term liquidity providers.
The market picture chart for the day indicates no significant upside for the Nifty with volume-based target of 6,172.50. The time-price opportunities (TPOs) data suggest support at 6,117.50. The trading data for two days hint at a price level of 6,205 tomorrow. There was short-covering in the November futures, which closed at a premium to the spot and shed 157,800 shares in open interest.
The call options participants covered positions in the 6,100 calls and built fresh positions in the 6,200-6,500 strike calls. The 6,100 and 6,200 put options together added 884,200 shares in open interest through sell trades, indicating support levels for the Nifty.