Expect more upside in Nifty for the short term

The Nifty opened on a positive note and closed above 2,800 at 2,828 on the US government’s bailout package for Bank of America and early gains in Europe. Technical indicators, according to Ashish Shroff of Ambit Capital, are trading in oversold and, therefore, one can expect some more upside in the Nifty for the short term.

Derivative traders expect the Nifty to take strong support at 2,800 and also continue its rally, targeting 2,900 first and then 2,950. The implied volatility (IV) of Nifty put options declined to 45 per cent from 48.92 per cent, while the IV of Nifty call options were down to 41 per cent from 45 per cent, indicating near-term stability for the index.

Open interest (OI) in 2,800, 2,900 and 3,000 calls is 12.55 million shares, which is 40 per cent of the total call OI in Nifty options. These options have seen a strong OI build-up of over 2 million shares in two days mostly through buy trades, indicating a near-term upside for the index. The 2,700 put added OI of 1.61 million shares, while the 2,800 put added OI of 608,800 shares, hinting that 2,800 will now act as the support level for the short term.

Nifty January futures were trading in a range of 25-28 points discount to the spot throughout the session, but ended with 12 points discount on short covering by bears. The settlement data also showed short covering as OI in January had declined by 400,050 shares at close as against the intraday build-up of 2.68 million shares. The Bloomberg data show 46 per cent of the day’s trade changed hands at 2,800 through buy orders, which suggests fresh upside for the Nifty in the near future.

Reliance Industries closed above Rs 1,200 at Rs 1,219 on short covering and fresh long build-up. The January futures of RIL added OI of 284,025 shares, while Rs 1,200 put added OI of 90,375 shares, indicating that the stock has strong support at Rs 1200 level.