Wary of going long

F&O OUTLOOK

The S&P CNX Nifty closed below the 4,500 levels, indicating fresh weakness in the markets. The good thing was that Nifty and BSE Sensex did not test the support levels and moved in the narrow range.

However, the open interest in Nifty September futures contracts remained more or less steady at previous day's level indicating the indecisiveness of F&O players on carrying forward their long positions.

The gap-up opening failed to sustain and Nifty fell back after testing the major resistance level of 4,535. The Nifty spot made a high of 4,538.60 in early trade and fell to low of 4,487 before closing at 4,497. The Nifty September futures discount increased marginally to 12 points from 8 points as no fresh short positions were created today.

The Nifty put call ratio open interest declined marginally to 1.52 from the previous day's 1.59. The Nifty Call options added OI of 8.29 lakh shares, while Nifty Put options added OI of 2.22 lakh shares.

The increase in Call options indicates a weakness in markets and F&O players are assuming that the markets are heading for a sharp correction.

The open interest positions in Nifty Put and Call options suggest that Nifty has support at 4,400 levels and resistance at 4,500 levels. The Nifty 4,400 Puts holds OI of 49.29 lakh shares which is 20.24 per cent of the total OI in Put options.

The Nifty 4,500 Call option holds OI of 35.71 lakh shares which is 22.25 per cent of the total OI in Call options. It is widely believed that the derivatives player is typically wrong on the market and thus uses contra-market indicators.

In other words, overwhelming call positions are considered to be bearish, while high put volumes at extreme levels is bullish.

The technical support for Nifty is at 4,476 and 4456 levels, while resistance is at 4528 and 4,559 levels.