F&O: Short-covering leads to rally

The derivatives players began covering their short positions when the Nifty June futures bounced back from the day's low of 4375.

The open interest in the Nifty futures rose marginally by 5,992 contracts despite trading volumes of 770,000 lakh contracts, which indicates covering of positions. The Nifty futures discount narrowed down from the intra-day high of 33 points to 22 points at close, also suggesting short-covering by bears.

Technical analysts believe the market has bottomed out for the short term and there could be a 100-150 points rally in the Nifty and 300-450 points in the Sensex in the coming days. The derivatives players have started building up long positions in momentum stocks, while booking profits on other counters.

The RSI (relative strength index) and MACD (moving average convergence divergence) on the daily and intra-day charts reveal oversold conditions and this could lead the next upmove towards 4650.

Out of the 226 stocks traded under the NSE derivative segment, as many as 144 saw a rise in both open interest and prices. A total of 66 stocks saw a fresh short build-up in open interest, while 16 others witnessed profit-booking.

The stock futures of Rajesh Exports, S Kumar Nationwide, Idea Cellular, Pantaloon Retails and Reliance Natural Resources firmed up between 8 and 14 per cent on fresh long positions.