After trading convincingly above 4,750, the Nifty today closed around 4,800 on short-covering and change of hands in futures from sellers to buyers.
This is a positive sign, although key index stocks closed in a Doji pattern, indicating indecisiveness.
The trading pattern, particularly in Nifty February futures, suggests the index may open above 4,800 tomorrow. There is likelihood of a sharp pullback in the near future that can take the Nifty above 4,900.
Despite a trading volume of 27.06 million shares, the open interest in Nifty February futures remained unchanged almost throughout the day, indicating change of hands from bears to bulls.
In the closeout session, there was unwinding of short positions by bears as Nifty futures shed 2.03 million shares in open interest. Bloomberg data show support around 4,750-4,775 and profit-booking above 4,814.
Technically, the Nifty has closed near its day’s high from the intra-day low of 4,740, which is a bullish sign for the market. If world markets close on a positive note, the Nifty is likely to open and close above 4,800. Options traders are expecting such a pullback as the 4,800 call saw short-covering and fresh long build-up through buy-side trades. Also, the 4,800 call holds 3.95 million shares in open interest, which is considerably lower compared to the open interest of 5.35 million shares in the 4,900 call and 5.59 million shares in the 5,000 call.
The open interest in the 4,800 put has been rising sharply in the last couple of trading sessions as participants expect that support can move above this in the near future. There was unwinding of open interest in put options above 4,900 strikes, mostly due to profit-booking. Foreign institutional investors remained quiet in the futures segment as no fresh addition in open interest was seen in index futures. This is a healthy sign and shows we may see some stability return to the market.