The Nifty October futures slipped below the time-price opportunities (TPO) support level of 6,135 to close at 6,092 on weak global cues and unwinding of long positions above 6,155. The October futures also closed below the lower end of the value area (6,120-6,185) with 25 per cent volumes, which hints at fresh weakness in future.
The volume based sell-off is expected to continue on Monday and the intraday market picture chart shows fresh downside for the index next week, possibly till around 6,000. Any upside from the current level is expected to face strong resistance above 6,165.
The initial balance range – the first two TPO time periods principally established by the liquidity providers – saw a change of hands which, in a falling market. This indicates long unwinding and an increase in short positions. Top traders became sellers around the value area, while retailers covered short positions.
Owing to this sell-off, the October futures looks extremely weak on the weekly market picture chart. According to Bloomberg data, a time-price correction can be expected around 5,980 and some volume-based downside around 5,960 early next week.
Participants of the Nifty options have started building short positions in 6,100-6,200-strike calls as open interest (OI) in these calls went up by 4.11 million shares on Friday, mostly through sell-side trades. The 6,000-strike calls witnessed a lot of change of hands, which suggest unwinding of long positions. Profit-booking was clearly seen in calls below 6,000-strike.
This means the options participants expect the market to correct sharply next week. The Nifty is poised to slip below 6,000 next week, as options traders bought 6,000-strike puts on Friday as well as during the week.
The excitement of seeing levels which were last traded in mid-January 2008 brought in some selling interest in foreign institutional investors (FIIs) in the derivatives segment. The FIIs were net sellers in the derivatives market, mostly on account of profit-booking in index futures and a short build-up in stocks futures. According to Moses Harding, head (global markets group), IndusInd Bank (Mumbai), there have been no drastic changes in the fundamentals to look for any trend reversal, and offshore supplies are there to stay over the short as well as medium term.
Domestic cues have turned from negative to neutral on expectations of a possible shift in the hawkish stance of RBI into a neutral one. The hope is also that of RBI leaving policy rates unchanged on November 2. In the immediate term, the markets would move into a consolidation mode within 6,020-6,280 and prepare in the near term for a shift into the higher trading range of 6,200-6,400. The trigger for this move and test/break of 6,400 will be on release of QE2 (second quarter estimates) and RBI’s taking a neutral monetary stance.
