Selling may continue at higher levels

The market picture chart is hinting at two-way movement in the Nifty with time-price opportunities (TPOs)-based upside of 6,112. However, the selloff in Nifty futures in the last two hours suggests a significant decline with TPO and volume-based support seen around 5,785. The trading pattern in the four trading sessions last week is hinting at the TPO-based support of 5,850.

On the options front, the implied volatility rose 200-300 basis points, indicating selling will continue at higher levels. Options traders expects fresh sell-off on Monday as the 5,900-strike call options added 2.45 million shares and the 5,800-strike call options saw build-up of 579,750 shares in open interest, mostly through sell trades. Traders hedged positions through long build-up in 6,000- and 6,100-strike call options.

 

The unwinding of short positions in the 5,900-6,100-strike put options was on account of fear of a fresh sell-off from Monday

The market reacted sharply on Friday to short build-up in index futures by foreign institutional investors on Thursday with the S&P CNX Nifty falling below its 5,900 support to close at 5,890. The index was expected to extend the relief rally towards the short-term resistance of 6,100. Going ahead, a close above 6,118 on a weekly basis will signal a trend reversal in the short term. The 5,800 level will act as a strong support in the coming days.

The Nifty opened with a gain on Friday despite weak cues from the global markets. A wave of selling in stocks across sectors, including heavyweight ones, pushed the Nifty below 5,900. During the second half of the session, the bears became more aggressive, which led the Nifty to a low of 5,860, before closing at a massive loss of 108 points, or 1.81 per cent, at 5,890, breaching its previous support levels.

The key stock futures, State Bank of India, Tata Steel and Reliance Industries, led the fall, while minor support came from Larsen & Toubro, Bharti Airtel and Hero Honda. The fall of these heavyweights saw Nifty November futures closing below the strong support base of 5,900. There was profit-booking above 5,960 and short-covering below 5,920. The December futures closed at 30 points premium and added 1.13 million shares in open interest.