Following Monday?s 2% decline, Nifty has closed below the crucial 5,400 mark. However the open interest in the derivatives side indicates a similar support getting built near 5,300 levels. Derivative experts expect the Nifty to hold on to this support at least till the expiry of the May series even as they foresee the market sentiment to remain weak.
With Nifty falling below 5,400, it has breached a two-year long trendline emerging from its March 2009 low and touching its February and March 2011 intermediate lows. A trendline in general indicates the underlying direction of the market; the breach depicting major reversals in the market sentiments.
In this case, the breach of the long-term trendline suggests a dampening market sentiment also as the Nifty June future closed at a discount of 0.7 points to the Nifty. However, experts believe that with three days left for expiry, only 25% of the index positions are getting rolled over. It is expected that substantial chunk of roll-overs would happen over the next two days which could keep the market above the 5,300 mark.
TS Harihar, derivatives co-head at ICICI Securities says, ?with the breach of the 5,400 mark we believe that the market sentiment may remain weak for the coming 2-3 months. But, given that a lot of rollovers are still to take place and there has not been a mounting built-up in the 5,500 calls in last few sessions , we expect the Nifty to expire in the 5,300-5,400 range.?
This view is supported by the gain of close to 5 lakh shares in the open interest of May 5,300 puts on Monday. On the whole, May 5,300 strike price holds the maximum open interest on the put side of the order of 65 lakh shares. The trendline joining the market lows during August 2009 and May 2010 adds to a support near 5,300.
On the higher side however, 5,500 is turning out to be the resistance which is likely to cap the Nifty?s gains in the coming sessions while 5,620 is expected to be the most crucial resistance. Experts see less likelihood of this resistance being overcome in the medium-term.
?A number of index companies are heading towards breaching a two-year trendline which should continue to add downward pressure on the market,? says Savio Shetty, research analyst- institutional derivatives at Prabhudas Lilladher.
The sustained decline in the spread of June and May futures in the last couple of days is also perceived as an indication of a weak market sentiment. ?The spread between the near-month and next-month series is generally close to 15 to 20 points. However, for the current spread of about 2.5-3 points between May and June series is implying a weaker undertone for the market,? added Harihar.