Despite a strong opening On Monday on account of the government’s stimulus package and positive global cues, the Nifty was unable to hold the 2,800-level. The index closed the day at 2,784 from an intraday high of 2861. The Nifty has slipped from this level for the fourth time in the last six trading days and chances are now high that it will correct to 2,500-2,550.

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Kamalesh Langote, a technical analyst at vfmdirect.com, notes that if the Nifty corrects to 2,500-2,550 in the next few days, it should be the last leg of the correction. At this level, a bear market rally, taking the Nifty up to the 3,600-level, cannot ruled out. The possibility of the index moving below its October 27 low of 2,250 is also remote, he adds.

Market participants expect a sharp correction in the Nifty as a result of profit-booking and build-up of short positions in the index above the 2850-level. Nifty December futures added an open interest (OI) of 3.85 million shares. Bloomberg data suggest that the addition took place when the index was trading above The 2,870-level. Nifty futures saw 84 per cent of trading volumes above the 2,800-level, of which 35 per cent trades took place at around the 2,870-level.

A number of index heavyweights like Reliance Industries, ICICI Bank, Larsen & Toubro, Tata Steel and State Bank of India witnessed profit-booking and build-up of short positions at higher levels. December futures of Reliance Industries declined by 4.7 per cent from the day’s high and added an OI of 1 million shares, indicating creation of short positions.

Traders were seen buying 2,600-2,800 strike puts, while brisk call writing was seen at 2,800-3,000 strike call options. The 2,600-2,800 puts together added an OI of 2.20 million shares, indicating that traders expect the Nifty to move down below 2,600 in the near future. However, the 2,500 put added an OI of 0.48 million shares mostly through put writing, indicating the support level.

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