Expect a strong bull rally

Nifty May futures saw rollover of long positions today, indicating that a strong bull market was ahead.

Technical analyst Kamalesh Langote of vfmdirect.com expects that technical buy signal will come above 3,520, which is also the trend-line resistance on the Relative Strength Index (RSI) chart. If the Nifty moves up and closes above 3,520, it can rally up to 3,740, he says.

Options traders, however, believe that the market will consolidate further and the Nifty can breach the 3,700-mark before the announcement of election results. These traders today bought 3,500-3,800 strikes call options of the May series on hopes that the index would move up further on rollover of long positions in index futures and key stock futures.

The buying in 3,500-3,800 strikes calls was remarkably high as increase in open interest (OI) in these calls accounted for 66 per cent of the total increase of OI in call options. The Nifty has strong support at 3,400 levels as this strike put options of the May series added an OI of 1.30 million shares. However, there was no significant rise in the OI of in-the-money options as traders were cautious.

Nifty futures witnessed a 74 per cent rollover in the May series, which was in line with the previous month. The April futures witnessed unwinding of short positions, indicating that bears expected a strong bull rally ahead. The May futures witnessed long rollover of 8.49 million as bulls expected the markets to rally strongly even after the election results.

Among stocks futures, ICICI Bank, Infosys Technologies, ITC, Jaiprakash Associates, Larsen & Toubro, NTPC, Reliance Industries and State Bank of India witnessed long build-up and unwinding of short positions. We may see a strong rally in these stocks going forward.