3,517 crucial for a surge

The Nifty could see a rally of 150-200 points in the coming week, once it closes above the crucial resistance level of 3,517. The index can go up to 3,650-3700 from the current level of 3,475.

The BSE Sensex may find resistance at 11,492, and if it closes above this level, it may reach 12,300. According to an analyst with HDFC Securities, these levels roughly correspond to the high of 2006 and the low of 2007.

As indices are trading within their strong resistance levels, there is a possibility that the current rally could halt here. So, fresh long position can be entered into with a short-term perspective due to limited upsides expected. Stop-losses can be kept under reversal levels of 10,716 for the Sensex and 3,296 for the Nifty.

Rollovers in the Nifty May futures were higher at 74 per cent compared to 69 per cent at the same time last month. Also the rollovers in the May futures were at a premium compared to a marginal discount last month.

This means that F&O traders are confident about the market rally and have paid annualised premium of 30 per cent to roll over their long positions.

Foreign institutional investors (FIIs) were net buyers in the cash segment in April and have build up long positions in the Nifty futures.

FIIs, which held an open interest (OI) of 616,742 contracts on the expiry of the March series, had an open interest of 660,573 contracts on the expiry of the April series.

They have turned cautious on individual stocks futures as the derivatives data suggest that they have been covering their short positions. This is reflected in their unchanged positions in stocks futures in the last one month.

The stocks that would drive the indices upward are likely to be Reliance Industries, ICICI Bank, State Bank and several other large-cap and mid-cap stocks.

Reliance Industries, which closed at Rs 1,810 on the last trading day, can move up to Rs 1,900 as options traders were seen buying 1,800 call at a premium of Rs 99 per share. Traders were seen covering short positions as stock futures saw substantial decline in OI from a month ago level of 8.21 million shares to 6.29 million now.