F&O OUTLOOK: Nifty expected to lose its support of 5,200

The benchmark indices rose for the second straight day today with S&P CNX Nifty closing at a 22-month high of 5,278. Nifty January futures closed at a premium to the spot and added 1.05 million shares in open interest through buy-side trades, indicating fresh long build-up. However, the Nifty remained range-bound after opening at higher levels.

Metal stocks were in demand due to surge in prices of base metals on the London Metal Exchange. The January futures of Tata Steel up 2 per cent on short-covering while Hindalco was up 6.4 per cent on fresh long build-up.

Traders bought 175-185 strike calls of Hindalco on expectation of a further rally. JSW Steel was up 11.2 per cent on short-covering and fresh long build-up as the company announced an 88 per cent growth in crude steel production in the third quarter.

The trading volume in put and call options suggests the Nifty has strong resistance above 5,300 and support around 5,200. Traders booked profit in the 5,200 call and initiated fresh short positions in 5,400 call options. This means the Nifty is expected to lose its support of 5,200 and may not even move around 5,400 in the near future.

The 5,300 call saw change of hands through buy-side trades in the morning session and sell-side trades in the afternoon session, indicating strong resistance above 5,300. The Nifty is expected to move between 5,200 and 5,300 as the 5,200 put added 1.07 million shares in open interest through sell-side trades while the 5,300 put added 0.63 million shares in open interest, mostly through buy-side trades.

Overall, the uptrend is likely to continue with next resistance at 5,370, says Gautam Shah, a technical analyst at JM Finance.

According to a technical analyst at Edelweiss Research, the Nifty has formed a strong bullish candle which can take it around 5,600 if it successful in going past the near-term resistance of 5,300.