Bulls seems to have lost control of market

The Nifty closed below the November 26 low of 5,690 after witnessing a 360-point intra-day volatility due to heavy volume-based buy-sell activity. The bulls tried to salvage the lost ground in the morning session, taking the Nifty from a low of 5,700 to the day’s high of 5,830. The bears came centre stage after noon, taking Nifty January futures first below the crucial support level and then below the November 26 low. The Nifty January settled at 5,654 and added 1.46 million shares in open interest, mostly short build-up by bears, the sell-side trades in the initial balance range suggest. The traders booked profit above 5,808 and covered some shorts below 5,700.

The market picture chart, which provides an insight into where the fair value is and who is controlling the market, suggests the Nifty futures may fall around 5,500. The spot Nifty is expected to get time-price opportunities (TPO)-based support at 5,612. However, a strong volume-based sell-off can take the Nifty around 5,515. The upside resistance continued at 5,800.

The liquidity suppliers, the floor traders and day traders, remained net sellers in the initial balance range last week. The value area, the price interval that contains 70 per cent of the day’s trading volume, saw change of hands in almost all five trading sessions last week. The point-of-control (PoC), which identifies the price level where the market has spent the most time trading, saw multiple distributions and in the end the market rotated below PoC. These trading indicators suggest that the bulls have lost control of the market.

The only factor favourable for the bulls has been the open interest in Nifty futures, which is manageable at 22.68 million shares. Foreign institutional investors (FIIs), who account for one-third open interest in the derivatives segment, have not built fresh short or long positions despite the Nifty correcting significantly from the higher level. However, the open interest build-up in index options indicates that FIIs have strongly leveraged their positions.

Call and put options data show significant call writing in the 5,600-5,700 call options. There was change of hands in the 5,800-strike call options. On the other hand, participants bought the 5,500-5,600-strike put options and covered short positions in the 5,700-6,000-strike puts options. This suggests a weak undercurrent.