Nifty shows weakness ahead of expiry; should you buy on dips or wait for more correction?

Ahead of the October series expiry, Nifty 50 opened below 11,650 points following weaker global cues, but soon recouped some losses to trade near 11,700-mark. Put option data shows that maximum open interest (OI) is placed at 11,500 strike with 54 lakh contracts while call OI is the most at 12,000 strike with over 65 lakh contracts. “Ahead of the expiry option statistics are suggesting us that shorting is advisable if Nifty breaks the level of 11,680. For that we need to keep stop loss at 11770,” Shrikant Chouhan, Executive Vice President, Equity Technical Research, Kotak Securities told Financial Express Online.

With a weaker opening for Nifty, Shrikant Chouhan said that investor’s strategy should be to buy the Nifty between 11620/11580 with a final stop loss at 11530. Nifty’s Wednesday’s close below the support of 20 days SMA is an indication of further weakness. Today, Nifty opened at 11,633, exhibiting weakness following a rout on Wall Street that saw US stock markets tumble the worst in four months.

Watch for this crucial support

“Ahead of yesterday’s fall we were not expecting the Nifty to go below 11,800 levels, but volatility has increased,” Sameet Chavan, Chief Analyst – Technical and Derivatives, Angel Broking said. He does not expect Nifty to move below the 11,700-mark this expiry but advises investors to maintain caution with an eye on 11,660 levels which, according to him, act as crucial support. “Taking any direction I would still be hopeful till we are above 11,660. If the market exhibits strength of going above 11,775 and 11,800 then the expiry could be above 11,800,” he added.

Short the rally

HDFC Securities said that the fall in the Nifty OI Put Call ratio on the back of Call writing at 11800-11850 levels and short build up by the FIIs’ in the Index futures and Index Option segment Indicates that one should be cautious for the markets. “Therefore, our advice is to be bearish and use any pullback rally to build fresh short positions with the stop-loss of 11850 levels. On the lower side support is seen around 11600 levels where Puts have been written,” HDFC Securities said in a note.

The 11,660 level is to act as crucial make-or-break levels on a closing basis, according to Sameet Chavan. “Keeping all the uncertainties aside, that includes the US elections, technically we expect the market to move beyond 12,000 and go closer to 12,200-12,400 but we have to be watchful as well for the 11,660 levels,” he said while advising a buy on dips strategy unless Nifty goes below 11,660 on closing.