Bulls expected to get an upper hand

The Nifty moved in a narrow range in the morning but broke the 5,270 resistance thereafter on short-covering and strong opening of the European markets.

However, the trading pattern in Nifty July futures suggests the bulls will get an upper hand only if the index goes above 5,330. Volume traders expect a fresh rally around 5,374 while the point of control indicated by time-price opportunity (TPO) remains 5,230. The Nifty may see a new high in the current series as top traders are buying shares at higher levels with support remaining at 5,230.

Nifty July futures saw short-covering of 2.25 million shares in intra-day trades, mostly from top traders, Bloomberg data suggested.

Retail traders booked profit above 5,310. The trading volume in Nifty futures was considerably lower compared to the normal, which suggested lack of support at higher levels. The open interest in July futures was also significantly higher at 32.56 million shares, indicating a tug-of-war between bulls and bears. The bulls, however, were expected to get the upper hand, as July futures continued to trade at a premium and top traders were in the buy mode.

Moses Harding, head of global markets group, IndusInd Bank, expects the market to shift into the bullish mode in the short term for gradual reversal to 5,350-5,400 (17,850-18,000 for Sensex) on the back of the central bank going into the pause mode after the July 27 rate hike to support growth. The reversal in the call money rate into the liquidity adjustment facility corridor will also increase the appetite of domestic institutional investors, diverting investments from fixed income into equity markets, while the widening interest rate gap will keep the appetite of foreign institutional investors intact.

Call options traders expect the Nifty to break the 5,330 resistance and move toward 5,400 in the near future. Traders covered short positions in the 5,300-strike call and bought the 5,500-strike call to hedge short positions at the 5,400-strike call. The 5,200-strike put continued to add open interest. Fresh open interest build-up was seen in the 5,300-strike put.

Among stock futures, Bharti Airtel achieved the TPO target of Rs 274 on short-covering at higher levels. Volume-based buying in July futures may take Bharti around Rs 280. Reliance Industries, ICICI Bank and State Bank of India saw short-covering by top traders at lower levels. The price projection using volume indicates fresh upside for these stocks.