Support seen at 4,900 level

The Nifty closed below 5,000 on Friday due to unwinding of long positions and fresh shorts build-up by foreign institutional investors (FIIs). We had indicated in our December 10 report that the index might not hold the 5,000 level in near future. Technically, the market is trading in a bearish triangle pattern and fresh correction is expected next week with strong support around the 4,900 level. The daily Relative Strength Index has drifted below the mean level of 50, indicating caution. Any failure to rise from the current level could see the index drift lower to test the 4,940 level.

The Nifty December futures closed at a discount of four points to the spot on Friday, and added 274,350 shares in open interest, indicating shorts build-up. The FII trading on Friday shows them to be net sellers in index futures and stocks futures. FIIs hedged their short position by buying index options. However, the Nifty January futures closed at a premium to the spot and added 579,550 shares in OI, indicating the rollover of long positions. The SGX Nifty December futures closed at 4,944 on Friday in over-the-counter trade, indicating soft opening on Monday.

Options traders expect the Nifty to trade below the 5,000 level as they built up short positions of 1.17 million shares in the 5,000 put on Friday. The 4,900 call options added 200,500 shares in OI, mostly through sell-side trades, indicating a weak outlook. However, the fresh OI build-up was seen at 5,100 and 5,200 calls through buy-side trades, indicating hedging of short positions.

5,000-5,200 puts together shed 1.50 million shares in OI through buy-side trades, indicating short-covering by bear operators. 4,800 and 4,900 puts together added 0.72 million shares in OI through sell-side trades as participants expect the Nifty to get support around the 4,900 level.

Among stocks futures, Reliance Industries witnessed short-covering as its December futures closed at a premium to the spot. DLF witnessed some long build-up as its December futures closed at a premium and added 340,800 shares in OI. Tata Steel witnessed profit-booking as it closed at the previous level and its December futures shed an open interest of 255,940 shares.