F&O Outlook: Markets may head higher

The call writers (sellers of call options) bought their short positions as the Nifty July futures opened with a positive gap of 145 points.

Call options witnessed higher trading volumes (11.20 million shares) on Thursday compared to the previous day's open positions (6.15 million shares), but the carried-forward positions declined by 1.1 million shares, indicating covering of the positions sold earlier. The call options buying suggests that Nifty may trade above 4000-4100.

The decline in Nifty July futures open interest in the last couple of days also suggests the possibility of a fresh bounceback in the share prices. The Nifty July futures shed open interest of 3.41 million shares despite trading volumes of 39.91 million shares, indicating short-covering by the market players.

The charts look extremely positive, going by the Elliot Wave studies. This, according to Ashish Shroff of Ambit Capital, is the completion of the corrective leg from the high of 5300.

Elliot Wave theory predicts the movement of the indices by observing and identifying a repetitive pattern of waves. According to the theory, the market moves up in a series of five waves and goes down in a series of three waves.

The Nifty tested the 2008 lows on two occassions in the last couple of weeks. With Thursday's recovery, the markets are likely to bounce back and consolidate in the coming days.