Nifty futures end on weak note, to remain bearish

As expected, the Nifty August futures opened on a positive note, but closed below the most crucial support level at 5,050 on profit booking. We had indicated that a bearish engulfing candlestick chart pattern would lead to fresh weakness at 5,000.

We had also indicated that the market is on a bearish trend and strong resistance for the August futures around the lower value of the previous day’s initial balance (IB) range (5,140-5,181) and support will be around 5,000. The index moved along the expected lines and saw a minor pullback from the day’s low of 5,006 to close at 5,040, on account of short covering at the lower level.

The market undercurrent continued to be weak and the trend changed from buyers/bullish to sellers/bearish. The Nifty is expected to revisit the recent low of 4,951 if it fails to hold major support at 5,000. The August futures closed at a discount to spot, and despite strong open interest (OI) build-up during the course of the day, the carry-forward OI remained unchanged at 23.55 million shares. This indicates long unwinding and build-up of fresh short positions by new players. It was also a net selling day as the Nifty closed below the point of control (PoC-5,114) with 84 per cent TPO counts below 5,114.

The market profile for the day suggested responsive selling, with sellers putting there shares on the block as soon as the index opened above the previous value area. This dragged the prices lower, right from the opening, and the market remained in the sell-mode. The market picture chart hinted at volume-based selling for the August futures at around 4,990.

However, the pullback, if any, on account of short covering would take the index to around 5,080, the MKTP chart suggested. Selling pressure in the initial balance (IB) range (5,100-5,140) indicated strong resistance above the 5,100 mark. The buying below 5,048 levels hinted at short-covering at the lower levels.

Options traders covered short in 5,200-5,500-strike put options and initiated a fresh short in the 5,100-5,000-strike call, as participants expect the current bear phase to continue for some more time. They also expect the Nifty to face strong resistance above 5,100. The OI build-up at the 4,900-strike put options through sell-side trades indicated strong support for the Nifty at 4,900, going ahead.