F&O Outlook: Benchmark has potential to go up

The Nifty closed above the 4,500 level once again today due to buying in index lightweights such as Hindustan Unilever, Hindalco, ITC, Reliance Communications, Suzlon and Unitech. The Nifty June futures continued to trade at a premium and shed open interest of 493,000 shares at close compared with the intra-day build-up of 2.89 million shares. This means traders have covered substantial short positions in the last two trading sessions, indicating that the benchmark has potential to go up further.

However, heavyweights Reliance Industries, ICICI Bank and State Bank closed in the red on profit-booking in the cash segment and unwinding of long positions in the futures & options (F&O) segment. The market has turned weaker due to this and hence we may see a sharp correction if the Nifty closes below the 4,455 levels.

The technical charts have turned weaker, hinting that both benchmark indices are at a possible short-term top. The Sensex made an intra-day high of 15,045 but failed to close above the supply zone level of 14,930. The Nifty made an intra-day high of 4,575 but closed at 4,530, indicating profit-booking at higher levels. The technical studies are deeply overbought, hinting at a knee-jerk reaction. Once the decline sets in, the first support for the Nifty is at 4,455 while the bigger one stands at 4,385.

The options traders expect limited upside for the Nifty from the current levels as they wrote 4,600-4800 strike calls at Rs 137, Rs 98 and Rs 67 premium. This means the Nifty may see range-bound movement with a low of 4,455 and a high of around 4,600. The 4,500 put witnessed short covering from put writers as they expect the index could decline below this level soon. The put writing was seen at 4,400, indicating a support level.