Current rebound may fizzle out at 2,750-2,800

The Nifty today posted its biggest rise in three months as hopes of a recovery in the battered US banking system boosted investor sentiments across the world.

The 50-share index crossed the 2,660-mark and closed above 2,700, while Nifty Futures also closed at a premium to the spot for the first time in three months.

The market is expected to open on a firm note on Monday as the most-traded stock futures –Reliance Industries (RIL), ICICI Bank, State Bank of India (SBI), DLF, Infosys Technologies, HDFC Bank, Tata Steel and Larsen & Toubro – closed near their intraday highs on Friday. This is taken as a bullish sign for the market to retain its upward momentum.

A significant unwinding of short positions was seen at 2,600 and 2,700 in call options as the open interest (OI) in these options declined by 2.57 million shares despite a strong volume of 22.83 million shares.

Put writing was seen in 2,600 (OI up 1.51 million shares) and 2,700 (OI up 1.12 million shares) options as F&O traders expected the current bear market pullback to continue at least for the short term.

But the current pullback is a typical bear market rally. So, it is expected to fizzle out at around 2,750-2,800 levels, according to market experts.

Even in the present rally, FIIs are continuing to sell, and this is putting pressure on any possible recovery. However, the Nifty’s Friday close of 2,719.25 will be taken as a major achievement for bulls.

The Nifty March futures shed an OI of 1.65 million shares at settlement and closed with a modest discount, indicating that traders have covered their short positions.

The Nifty April futures continue to add fresh OI but at a discount to the March futures, indicating that F&O traders have taken a bearish view of the markets as they expect that no political alliance would be able to garner a majority in the upcoming general elections.