With future contracts of benchmark indices closing considerably lower to the underlying, the markets are expected to test lower levels amid volatile sessions, before resuming the upward run.
While the Sensex and the Nifty ended Thursday's volatile session deep in the red, Nifty futures closed at a 44-point discount to the underlying at 5,307 and Sensex futures closed at 17,700, lower by 298.39 points to the underlying.
Market experts said that investors were closing their long positions (buy equivalent in derivatives), which reflects a growing apprehension about a further upside in this market. "Investors are closing down long positions. Price and open interest movements have been in negative territory and the Nifty has shed around 10 lakh in open interest today. However, the mood may not be significantly bearish as shorts (sell equivalent in derivatives) have not been built up in a major way," said Jitesh Ranawat, derivative analyst at Pranav Securities.
The overall put-call-ratio on the Nifty stood at 1.25, meaning the bear count was 25 per cent more than that of bulls.
Chartists expect the markets to conduct a survival test for investors. They think the markets are going to be extremely volatile in the days to come, which will throw away weak and leveraged investors. They call this the "hound of baskerville syndrome".
"Typically, this pattern is acts as a bullish/bearish shakeout pattern, wherein the markets shake out the weaker hands and reward the fittest. These periods are extremely violent and volatile. The immediate support levels to watch out for in the coming days will be the 5,090, 4,875 then finally the 4,680. Below the 4,680 level, the markets may go into a limbo for a while. We will re-visit this issue in the near future. Till then, play safe," said Vijay Bhambwani, CEO of BSPLindia.com