F&O Outlook: Keep a close watch on 4385

The Nifty moved in the range of 4400-4430 through most of the trading session and, more importantly, ended above the crucial 40-DMA (daily moving average) of 4385. A close below this level could drag the index to 4180.

The Nifty has a strong support in the 4350-4400 zone (Sensex 14,400-14,700), based on technical studies such as Elliot waves, moving averages and Fibonacci numbers. The PCR of 2.37 at the 4300 strike price and 1.58 at the 4400 strike suggest that Nifty would trade in a range-bound manner.

The Nifty August premium almost doubled to 14 from the previous trading day, amid thin trading, suggesting that no fresh short positions were build up. The August futures added open interest of 2.14 million shares in intra-day trading, but witnessed only a modest increase of 379,400 shares in the trade-off session.

The Nifty’s support at 4300 remains intact for the time-being as the put OI at this strike price has been the highest, at 3.49 million shares, compared to the call OI of 1.48 million shares. The PCR of 2.37 at the 4300 strike price also points to support at this level.

However, there was no significant addition in open interest at the 4300 strike price despite trading volumes of 2.75 million shares in put options as the put writers covered their short positions. There are apprehensions that the Nifty may weaken further in case it declines below 4385.

The Nifty PCR-OI slipped to 0.97 due to covering of short positions at the 4200, 4400, 4500 and 4600 strike prices. There was a marginal decrease in OI at the 4500, 4700 and 4800 strikes, indicating profit taking at these levels. The decline of PCR OI below one shows that the markets are oversold.