Nifty may see a major correction

Friday saw profit-booking at higher levels, which finally brought the focus back on regular markets. Otherwise, for most of the week, Coal India’s initial public offer was hogging the limelight.

The Nifty October futures shed 1.63 million shares in open interest (OI), mostly through sell-side trades, indicating profit-booking. The intra-day market picture chart suggests the 6,105-6,150 range will see unwinding of long positions with strong support at 6,040.

The November futures did not gather much steam and closed above 6,100 at 6,116. The futures added 848,950 shares in OI and – despite only four days left for the expiry of the current month’s series – aggregate OI stood at 4.67 million shares compared to 7.27 million shares in the October series. The poor rollover in the November futures hints at a 5-10 per cent correction in the market in future.

The last time such a situation was seen was in April this year. At the time, the following month’s series had a rollover of 4.99 million shares four days ahead of expiry, and the market saw a 500-point correction in the Nifty within a month.

It’s no wonder then that participants have started unwinding short positions in the 6,000-strike put option of the November series and built up positions in the 5,800-strike put options. The 5,800-put options of the November series holds the highest OI among all November series puts, which indicates a 300-point correction in the Nifty from current level.

On the weekly market picture chart, the Nifty is projected to trade below 6,000 with volume-based support seen around 5,940. The intra-day market picture chart indicates a Nifty level of 6,212.50, based on price projections using time-price opportunities (TPOs). The TPO data – after significant correction from the day’s high of 6,150 – suggests support for the Nifty around 6,040.

The built up short positions in the 6,200-call options of the October series, despite four days left for the expiry, hints at a strong resistance level for the Nifty. The 6,100-call option saw a fresh build-up of a million shares in OI through sell-side trades, while unwinding of 1.14 million shares was seen in 6,100-strike put options through buy-side trades. This means participants expect the October series to expire around 6,100. The open interest build-up in 6,000-strike put options suggests support for the Nifty at 6,000.