The Nifty formed a Doji pattern for two consecutive sessions last week, indicating uncertainty at current levels. A Doji pattern is formed when the index or the stock opens and closes at the same level, implying indecision in the price behaviour.
Moreover, after hitting the trend-line resistance of 2,980 on Wednesday, Nifty futures have been unable to cross the 2,950-level, which remains an important level for a further upside.
Derivatives indicators suggest a liquidation of long positions as there is an overall decrease in prices along with a decrease in the open interest (OI), says Rakesh Bansal, a technical and derivatives head at SMC Global. He expects F&O traders to book profits in several stock futures of metals, capital goods and realty sectors as there is a decrease in prices along with a decrease in the OI.
According to Bansal, there is a build-up of long positions in banking and power sectors as prices and the OI have risen. Information technology and auto sectors have witnessed a short build-up as stock futures of these sectors have declined along with an increase in the OI.
The Nifty has a maximum OI at 2,500 put and 3,000 call, which suggests a range-bound trading at 2,500-3,000 for up to this month’s expiry, until and unless either of the barriers is broken.
Bansal indicates that the implied volatility of the put option is more than that of the call option, which suggests either hedging of long positions or there an aggressive creation of fresh short positions.
Foreign investors were net buyers in index futures in the first three trading days last week and turned net sellers on Friday. The OI in index futures remained steady, while they were net buyers, but rose sharply by 42,059 contracts (2.10 million shares) when they turned net sellers on Friday.
This indicates that FIIs were squaring off shorts and rolling over long positions at lower levels. On Friday, they booked profits at higher levels and initiated fresh short positions at these levels.
