More correction on the cards

The benchmark indices closed in the red in volatile trades on weak global cues. The realty, metal and banking stocks declined, while index heavyweight Reliance Industries closed in the green on short covering. The Nifty index closed below 2,700, for the first time after December 3, while Nifty futures closed at a discount indicating continuation of short positions.

Technical analysts expect further correction when the market opens for fresh trading on Tuesday. The indices were making lower tops and lower bottoms in the last few trading days, indicating a bearish set up. Therefore, it is reasonable to expect more downside from the current levels.

The Sensex will face strong resistance at 9,000 and the Nifty at 2,750 and, hence, it would be difficult for the indices to move past the same in the near term, according to an analyst. In the last couple of weeks, almost every day one large-cap stock in the F&O segment has lost substantial ground, which clearly suggests that the bears have a firm grip on the markets.

The Nifty January futures shed open interest of 3.11 million shares, while its discount to spot remained at 23 points. The February futures added open interest of 3.99 million shares while it discount to January futures widened from three points to seven points. This indicates the F&O traders are unwinding long positions in the January futures and building short positions in the February futures.

There was a build-up of open interest in the 2,600 call options and unwinding of long position in the 2,700 call options. This indicates that the traders expect the Nifty to settle between 2,600 and 2,700 in the current month series, which will expire on January 29.

The 2,500 put of the February series has added an open interest of 642,150 shares at an average premium of Rs 103 per share, indicating that the Nifty may revisit its October low sometime in the February series.

The market has rolled over 31 per cent open interest in the February series, which is higher than the 25 per cent rollover seen in the January series on day three of the expiry of the December series. The Nifty has witnessed 38 per cent rollovers in the February series compared to 30 per cent witnessed at the same time of the previous expiry.