Crossing 4,390 key for the rally

The Nifty tested the 4,390 level on Friday and closed the session near its trendline resistance level. According to a technical analyst, crossing over the 4,390 level will be important for the Nifty to continue the uptrend.

The 4,390 level is also a 61.8 per cent retracement of the fall from 4,693 to the 3,919 level. The crossover means a 100 per cent retracement.

Options traders expect the Nifty to move between 4,400 and 4,600 this week, so they unwound their short positions during the Friday morning trade and created long positions during the afternoon trade. The Nifty may get support at 4,300 as traders unwound short position of around 1 million shares at this strike call, while same strike put added an open interest of 1.46 million shares.

Foreign institutional investors (FIIs) covered short positions in the index futures at lower levels and created fresh long positions thereafter as they expect the rally to continue in the coming week.

The Instanex FII Index of the 15 stocks indicates that FIIs have covered short positions in Bharti Airtel, ICICI Bank, HDFC Bank, Larsen & Toubro and State Bank of India as these shares outperformed the benchmark index on Friday. Among other key stocks futures, short covering was seen in Reliance Communications, DLF, Reliance Industries and Larsen & Toubro.

The Nifty July futures closed with a premium of 7 points to the spot on Friday, while the open interest declined by 178,100 shares due to short covering at lower levels.

Open interest in the July futures has declined by 1.10 million shares during the week as FIIs and other traders covered their short positions during the week.