Correction to stay on course

The Sensex and the Nifty closed in the red on Friday on profit-booking in technology stocks and lack of interest in other pivotals at current levels. The trading volume on the F&O segment remained lackluster as the Nifty provided little scope for trading since it moved in a tight range of 20-30 points on Friday.

The most-traded index stocks—Reliance Industries, Tata Steel, Suzlon, Hindalco and Reliance Infra—closed in a Doji pattern indicating lack of interest among F&O participants. The frontline software stocks Infosys, TCS and Wipro slipped in the red as traders booked profit on appreciation of the rupee against the dollar.

The trading pattern on the F&O platform suggests that the correction, which set in during the last two trading days, is expected to continue next week. The Nifty January futures moved in a tight range throughout the week and added 2.15 million shares in open interest (OI), mostly through sell-side trades above the 5,300 level. These indicate building up of short positions.

Foreign institutional investors (FIIs) were net sellers in index futures in the last couple of days, indicating that they have created short positions at higher levels. FIIs were net sellers in stock futures throughout the week and have also build up short positions. This means that the markets will remain weak with more corrections expected next week. The derivatives data suggest that the Nifty has strong resistance above the 5,300 level, while support remains at the 5,200 level. Technically, bears will have upper hand only if the Nifty closes below the 5,180 level.

The Nifty closed at 5,244 on Friday. According to technical analysts at Sharekhan Research, the index has strong support at the 5,240 level. However, a narrow body pattern formed last week indicates continued indecisiveness at these levels. The 14-day Relative Strength Index (RSI) is resting on its trigger line, indicating the importance of support at these levels. Continued support at the 5,220 level will be crucial for the uptrend in Nifty to remain intact, feel analysts.