Bull trap or a Bear trap ??

With the April series in F&O having ended at a high that would have been difficult to predict even for the most optimist at the beginning of the series, we have had two trading days since then, both bringing in interesting possibilities. Nifty fell a whopping 95 points on the very next day after expiry, having hit a high of 4218 the day before, within striking distance of its alltime high of 4245 reached in Feb 07. With the spectre of another feburary-like scenario enfolding ( Nifty had fallen 101 points on the day after the expiry of Feb series), nervousness could be felt as we went into trade on monday morning. Even though the global markets werent gungho on friday, they werent weak enough for us to attribute the fall we saw on friday to global factors. As expected, markets opened weak on monday and traded sideways to down for the first half of the day. Then, when it looked as if the indices would breach the support levels of 4040-4030 (given the fact that global cues were flat to weak and we had two trading holidays coming up), the markets reversed and recovered the entire intraday losses to close in the green for Nifty and a loss of mere 36 odd points for the Sensex. Just as the 95 point fall was unexpected on friday, so was the 60 points intraday recovery from the lows of the day on monday.
So, what can we expect now in a truncated trading week when we open on thursday ? Was the selling we saw on friday a trap for the bears ? Or was the reversal seen on monday from the lows a trap for the bulls ? Both seem possible as of now ... what would be important is how we close this week. Previous week had a close of 4083.50 and a weekly close above that for this week could negate the possible doji formation on the weekly charts for the previous week. Closing below previous week's low of 4058 would give credence to the weakness on the charts. On the other hand, if we manage to break 4120 on the nifty intraday, we could see short-covering which could then propel us to 4145 where we can expect resistance. Sustaining above 4145 would be an indication of an upmove and a retest of previous high would be in order.
Its interesting to note, however, that the FIIs havent really been buying in NF in the last week, except on 24th April when they had a net buy of 400 cr in NF. However, the OI data as on 24th gives an idea that most of the buying was short-covering/closure of long positions and not fresh longs. Also, another interesting piece of data that comes to light is on 26th April, the day of the expiry. FII OI in NF till the day before was 866,839 contracts whereas at the end of expiry, they had a OI for NF at 623,300 contracts. Thats a whopping difference of 2.43 lac contracts ! The gross buy/sell data for that day in NF for FIIs cant justify this decrease. So, how did it go down so much ? They simply let the April contracts expire, I would say. That would logically indicate that those were short positions which, if covered, would have taken the NF even higher than it was on the expiry day, so better to let them expire. The next day when we fell 95 points on the Nifty, FIIs sold 517 cr in NF alone and their OI went up as well, indicating creation of fresh short positions. On monday, FIIs sold 808 cr in NF alone, though the OI only went up marginally, indicating most of it was closure of existing longs.
So, watch the action closely on thursday as that should give us a clue as to where we are headed in the coming week or two. Enjoy !