Fresh rally with gap-up opening on the cards

Trading in the Nifty futures and call options suggests that the futures & options traders covered most of their short positions on Friday around the 4,500 level. The Bloomberg data suggest that almost 60 per cent of the buy-side volumes changed hands around 4,480-4,520 levels. The August futures were traded at a discount of 14 points to the spot during the intraday trade, but closed almost at par with the spot and added an open interest of 704,300 shares.

The put buyers were seen booking profits at the 4,600 and 4,700 strikes as open interest in these puts declined by 733,100 shares, mostly through sell orders. Traders were seen writing the 4,400 and 4,500 puts on expectation of the Nifty getting a strong support at the 4,500 level. While the Nifty corrected from the day’s high of 4,591 to 4,463, surprisingly the options traders were seen buying 4,700-4,800 strike calls. This meant that we might witness the end of the short-term correction and a fresh rally might emerge on Monday.

The S&P CNX Nifty closed below the 4,500 level on Friday as investors booked profits on concern over below-normal monsoon. The Friday close of 4,481 is also the key trend reversal level. The daily RSI is trading near the mean reversal level of 50, pointing to the significance of support at these levels.

The correction, however, has helped indices move away from the overbought zone to neutral zone. Technically, the Nifty could get support around the 4,400 level, which is also a 50 per cent retracement level of fall between January 8, 2008 and October 27, 2008. The US and European markets closed in the green, which indicated a gap-up opening in our markets on Monday.

The F&O traders booked profit in several mid-cap stocks such as Ispat Industries, IFCI, GVK Power, Balrampur Chini, Nagarjuna Fertilisers, GMR Infra and IVRCL. A fresh OI build-up of over 500,000 shares each was seen in ITC, Idea Cellular, IDBI Bank, Reliance Petroleum and Suzlon Energy.