A correction likely in near future

As expected, the August series expired in the projected range, since participants preferred to trade above 5,465 even as they encountered resistance at 5,500 on the upside. The trading in the Nifty futures all through the day remained range-bound at 5,475-5,485, indicating that both bulls and bears were adopting a wait-and-watch attitude, while running for cover.

The Nifty September futures closed at a discount to spot and added 8.50 million shares in open interest (OI), hinting at fresh short positions.

As of Thursday, the last day of expiry, the Nifty futures’ OI reached 31.53 million shares — an amount last seen in April 2009. The Nifty has risen around 60 per cent in the last one and half years and the strong build-up in OI may be on account of the bears taking new short positions.

In fact, according to trading data, every rise over the 5,500 level in the last few trading sessions was taken as an opportunity by bears to sell. Given these bearish conditions – both in domestic and off-shore markets – it is feared that we may see some correction in the coming days.

The point-of-control (PoC) – the price level where the market has spent the most time trading – saw double distribution. This means traders faced difficulties in finalising the right price. Of the traded volume, 81 per cent was created in the PoC area (5,475-5,485), mostly through a change of hands. This shows there is a short build-up by bears around the PoC.

Price projections on the basis of time-priced opportunities (TPOs) suggest the Nifty may move up to around 5,502 with volume-based resistance expected at 5,512.50.

Options traders bought the 5,400-strike calls and sold the 5,500-5,600-strike calls of the September series. Put writing was visible in the 5,300-5,400-strike puts. Participants also bought the 5,100-5,200-strike puts of the September series.

This hints at a strong resistance for the Nifty above 5,500 and that the 50-share index is expected to get support around 5,400. In case, the Nifty falls below the 5,400 level, it will still have strong lower level support at 5,200.