F&O Outlook: Low volumes suggest resistance at higher level

The Nifty opened on a positive note, kissed the October highs around 1.15 pm and closed in a Doji pattern, indicating uncertainty at higher levels. The failure to cross the October high means crucial times ahead. The formation of the Doji pattern for the second day in a row indicates the participants are wary of taking fresh positions at higher levels.

If the Nifty closes above 5182, it will reverse the trend on the upside, says a technical analyst with Sharekhan Research. However, the Nifty has short-term support at 5,095 as has closed above 20-DMA and 40-DMA in the last two days. Considering the steady opening for European markets, we may see a positive opening tomorrow.

According to a technical analyst at Emkay Global Financial Services, Nifty’s daily chart shows that the price/volume set-up continues to remain weak as volumes have failed to expand sufficiently during rallies.

The set-up shows there are more sellers than buyers as volumes tend to expand on down-days and contract on up-days. This means lack of participation at higher levels in the short term.

The Nifty December futures witnessed strong support below 5,130, which indicates that participants expect no immediate downside below 5,100. Bloomberg data suggested that bears covered short positions when the Nifty futures started trading above 5,160. Change of hands was seen above 5,170 while there was short-covering below 5,130.

Trading volumes in Nifty options suggest the index has strong resistance between 5,200 and 5,300 as the 5,200 call added 466,200 shares in open interest through a blend of buy and sell trades while the 5,300 call added 662,300 shares in open interest, mostly through sell-side trades. The support for the Nifty is at 5,000 levels as the 5,000 put has the highest open interest among put options.