F&O Outlook: Short-term rally on the cards

The Nifty May futures attracted buying support at 5110 and closed the day at 5157. The premium widened from 18 points to 22 points and the open interest rose by 12.4, indicating long built-up at lower level.

The activity in call and put options remained low. Out-of-the money call buying was seen at the strike prices of 5,400 and 5,500. Option traders were earlier buying in-the-money calls at 5000 strike prices and writing OTM calls at 5300-5500 strike prices. The buying in OTM calls shows that a short-term rally is on the cards.

There was a built-up of short positions in banks and realty stocks and fresh long positions were initiated in technology and sugar shares. The futures of State Bank of India, Axis Bank and Bank of India declined by four per cent and the OI rose by around 15-20 per cent.

Ashish Shroff, technical analyst at Ambit Capital said that while the intra-day momentum indicators are in a sell mode, the relative strength index (RSI) has shown oversold signs in the last two days. The markets could thus bounce back on an intra-day basis.

According to a technical analyst at JM Finance, the Nifty charts show a bullish "Flag" pattern and an upside breakout is therefore likely in the next few days. The Nifty and the Sensex are taking support from the earlier resistance levels of 5,100 and 17,200 respectively.