Cues from Singapore augur ill

F&O OUTLOOK

The Nifty opened on a positive note, but could not sustain its morning gains and drifted into the red to close at 4,008 with a loss of 67 points. Technically, the five-day Relative Strength Index (RSI) is at 16, which indicates an oversold position in the market.

However, as we had indicated in our Sunday edition (September 14, 2008), the current market set-up is in a diametric pattern, with the Nifty targeting 4,000-3,800 levels. The 4,000 level is already achieved and the next target will be the 3,800 level.

According to a technical analyst at Ambit Capital, the Nifty is facing selling pressure around the 4,120-level. On the daily chart, the 10-DMA has crossed the 20-DMA, signalling the bearish trend will continue in the short term. Trading in options contracts suggests the Nifty has strong resistance at 4,100, while its support level is now slipping from 3,900-4,000 to 3,800. The 4,000 put added the OI of over 300,000 shares mostly through put buying, while the 3,800 put added the OI of 350,000 shares through put writing.

Any recovery in the Nifty above 4,100 is likely to be met with selling pressure as we saw the call writing at 4,100-4,300 strikes. The 4,100 strike call option added the OI of 2.14 million shares in intraday trade, mostly through call writing, suggesting resistance above the 4,100 level.

Nifty September futures witnessed unwinding of long positions, with their premium to the spot market almost vanishing from 16 points yesterday. Moreover, Nifty October futures have added the OI of almost 1 million shares with negligible cost of carry. This indicates that some short positions are carried forward. The weakness is evident in the late trade on the Singapore Exchange, where Nifty September futures traded at 3,920 against a close of 4,010 on NSE.