The global equity markets have corrected sharply with most of the major indices having lost 5-22% in the calendar year 2011 so far.
As of 5: 35 pm Indian Standard Time, equity markets from the US, UK and Europe were trading inches above their last week’s low that was hit on August 9.
According to market experts, if the global indices fail to find support at these levels and move lower, it could push value of Nifty further down.
As per technical experts, Dow Jones Industrial Average which closed at 10,990 on Thursday, would find immediate support at 10,700-10,600 and if it is breached , it could push the US benchmark index further lower towards 10,400 before finding the next support.Similar is the case with European indices like UK’s FTSE 100 and France’s CAX 40. Both these indices are currently hovering above their last week’s lows and could correct a further 3% if these lows give away.
It is important to understand the threshold at which global indices are currently trading since Nifty and Sensex are currently taking global cues from US and Europe. Worries of recession is US as well as Europe has been keeping global markets including that of India at tenterhooks.
And Nifty, unlike its global counterparts, is trading well below its last week’s low (4,946) and stands a chance to fall as low as 4,700-4,650 range, if it fails to hold at 4,800. During Friday’s intraday session, the 50-share benchmark index briefly dipped below 4,800 mark on an intra-day basis before it bounced back to close at 4,845.6.
On Friday, in-the-money calls for both 4,800 and 4,700 strikes witnessed huge build up in open interest, of 21.2 lakh and 4.7 lakh shares, respectively. According to derivative experts, such huge build-up, especially in 4,800 calls indicate that options writer is confident of a further decline of at least 100 points ( equivalent to the price of the option) from 4,800.
On the put side , 4600 strike has not only added the maximum open interest of 31 lakh shares for the day but it also holds the highest open interest for any strike, indicating the strength at this level.
According to T S Harihar of ICICI Securities, given that the market doesn’t have substantial long positions, the pace of decline may fade from hereon.
?Unlike January-February, the institutional open interest is currently lesser which means that a huge unwinding from here may not happen and market may drift around the key support of 4800-4600.? he added.
