Weak rollovers indicate long unwinding

The Nifty could not hold on to the 5,100 level and expired at 5,005 on account of unwinding of long positions in index as well as stocks futures. The rollovers in Nifty December futures were lower at 71 per cent compared to 75 per cent in the November series same time last month. In absolute terms, the Nifty December series carried an open interest of 25.12 million shares compared with an open interest of 26.60 million shares in the November series same time last month.

The futures & options (F&O) participants seem to have been caught napping by this sharp correction as they were expecting the index to close around 5,100. Traders built up 7.17 million shares in open interest in the Nifty December futures intra-day, but after witnessing the Nifty sinking below 5,050, they covered their long positions in the end. So, in the end, the Nifty futures added three million shares in open interest and closed on a par with the spot, indicating built-up of short positions.

The put-call ratio (PCR) for the new series was at 0.81 compared to 1.18 a month ago, indicating cautious approach by F&O participants. Traders unwound their short positions at the 5,000 put of the December series on expectation of fresh corrections. The 5,100 put added 260,600 shares in open interest through buy-side trades, indicating weakness. The 5,000-5,200 call added 4.17 million shares in open interest through sell-side trades, indicating short-term resistance for the index.

According to a technical analyst at Angel Broking, due to the sharp correction, daily charts saw breakdown of an upward slopping trendline with negative crossover in the momentum oscillators, RSI and Stochastic. This suggests weakness going ahead. The coming trading session is expected to have a negative bias. On the downside, if indices trade convincingly below 16,808/4,980, they are likely to test 16,550/4,900 levels.