F&O Outlook: Expect firework in Dec series

The Nifty had completed its technical formality on Friday by closing above the resistance levels of 5,060 to keep the current bull-run moving. The index however expected to face resistance above the 5,100 levels next week. The SGX Nifty futures was down by over 50 points over the official close of 5,077 in the over the counter (OTC) session on Friday. The US and European markets closed more or less in a Doji pattern indicating indecisiveness among participants. If this weakness continues then we may see the gap down opening for the Nifty on Monday. 

According to Subhash Gangadharan, analyst at HDFC Securities, the trend is now up on all time frames (Short-term, intermediate term and Long term). With technical indicators giving bullish signals and supporting the current uptrend, analyst expect now the main indices are headed towards their current 2009 highs in the intermediate term. As bull markets are known for making higher tops, there is possibility of the main indices breaking October highs and scaling new highs in the process. The next logical target for the Nifty is around 5,300 levels which is intermediate tops of 2008.

The options traders expect the index to move new highs before expiry of the November series on Thursday 26. The traders unwound short positions at the 5,000-5,100 calls of November series and build-up long positions in the 5,100 and 5,200 calls of December series as they expect the current bull-run to continue in the new series. Nevertheless The FIIs were net sellers on cash and derivatives segment on Thursday and Friday indicating profit booking at higher levels.

The Nifty November futures closed at a double digit premium for the first time last week indicating unwinding of short positions at the lower levels. The futures shed 1.44 million shares in open interest (OI) on Friday and the Bloomberg data suggest that unwinding taken place when the index was trading around 4,960 levels. The Nifty December futures closed at 20 points premium to spot and added 2.17 million shares in OI indicating long build-up.

The options traders were seen covering short positions in the 5000 and 5100 call options and writing the 5000 and 5100 puts as they expects the Nifty may trade above the 5,000 levels next week and even closed above the 5,100 levels in the near future. The Nifty expected to get strong support at 4,800-5,000 levels as 4,800-5,000 puts account for 51 per cent of the total OI in put options. The resistance is seen above the 5,100 levels as the 5,100 call has highest OI among call options.