F&O Outlook: Nifty unlikely to go below 2,900

The Nifty closed below 3,000 levels on account of profit-booking in banks, metal, realty and technology stocks. ICICI Bank and Tata Steel declined by over 12 per cent each, while DLF, State Bank of India and TCS fell by over 9 per cent each. The Nifty April futures premium to spot declined from 16 points to 10 points, while open interest (OI) declined by 2.02 million shares, indicating profit-booking by bull operators.

The Nifty closed at 2,978, down 130 points from its Friday close of 3,108. Bloomberg data suggests that traders were buying Nifty futures at around 2,990-3,005. The data show that over 25 per cent trades had taken place at an average level of 2,995-3,000, indicating that the Nifty could get support at below 3,000 levels. Also, the OI of 4.41 million shares at 2,900 put options suggests that the index may not go below this level.

Put unwinding was seen at 3,000 and 3,100 strikes calls, indicating that Nifty may trade below 3,000 levels. Call writing was seen at 3,100 and 3,200 levels, indicating that the index has resistance at higher levels. Strong support is seen between 2,700 and 2,900 levels.

According to technical analyst Kamalesh Langote of vfmdirect.com, the market was overbought and was due for some correction. With the two-day swing exiting, traders seem to have closed their long positions. Since markets are trading at resistance levels, a bounce is possible and this will give a chance for fresh positional shorts.

The rally in the last three weeks has been backed by improved volume activity, increased participation and good momentum. A similar rally was witnessed from November 2008 to January 2009, but ended after the Satyam fiasco. On Friday, the Nifty was trading in the overbought zone and trading just below the all-important resistance of 3,150 and hence correction was inevitable.