F&0 Outlook: Immediate support seen at 5,050

The Nifty maintained its support of 5,080 and closed at 5,131 on short-covering at lower levels. The Nifty December futures, which saw more sell side-trades, closed at a discount to the spot and shed 678,300 shares in open interest, indicating profit-booking. The Nifty futures have not added fresh open interest since last week as traders are indecisive at current levels. This means if the Nifty closes below 5,050, bears will gain strength. A sharp correction is possible around 4,900 only if the index closes below 5,050.

Options trades indicate the Nifty may slip below 5,000 in the near future if it closes below 5,050. This was indicated from 5,000 strike call options, which added 118,500 shares in open interest through sell-side trades despite a low volume 1.02 million shares. The 5,100 call saw change of hands through sell-side trades as open interest in this call rose by 40,450 shares despite a trading volume of 6.94 million shares. Resistance continues at 5,200 as this strike call holds the highest open interest among call options.

The 5,000 and 5,100 puts together added 266,700 shares in open interest, mostly through buy-side trades, despite a trading volume of 13.80 million shares. This means traders who wrote these puts earlier might have covered their positions on expectation of a correction in the near future. The 4,900 put saw change of hands as it added 50,450 shares in open interest despite a trading volume of 3.55 million shares.

Gautam Shah, a technical analyst at JM Financial, expects the Nifty to move in a narrow range of 5,100-5,150 with a lot of intra-day volatility. Technically, the bullish set-up has not changed as most technical indicators and moving averages remain intact. The recent range-bound activity can only be understood as a lull before the breakout, he says. Immediate support for the Nifty is seen at 5,050. Only a close below this will lead to negative triggers.