Index expected to test 4,900 level

The Nifty closed marginally above the support of 5,000 on short-covering at lower levels. Profit-booking in the 5,000 strike put of January series suggests the Nifty may not lose support at this level.

A close below 5,000 may trigger further weakness in the market and the index is expected to test the 4,900 level. The overall trend has turned bearish, which will change only if the index closes above 5,225.

The Nifty breached the major trendline support on Friday after breaking out from the wedge pattern. It took support at the low of 4,943, from where it started its rally. Now, 5,170 remains a very strong resistance in the medium term and 5,130 a strong resistance in the short term. The Nifty confirmed a breakdown on Thursday, showing a bearish reversal pattern at 5,180, said technical analyst Gautam Shah of JM Financial.

The steep fall in just two trading sessions was due to a rising wedge pattern, said a technical analyst at Edelweiss Research. Rising wedge patterns are bearish and are found at the ends of uptrends as well as during downtrends. In either case, a downside break from a rising wedge pattern is a technical sell signal or a short-sell signal.

Option contracts were very active in the last three trading sessions with 5,000-5,200 calls together clocking huge volumes, mostly on account of short-covering and profit-booking.

The 5,000 level witnessed short-covering when the spot Nifty moved below 5,000, indicating the index is likely to trade above this level. The level may act as a support as the highest build-up in put options is at the 5,000 strike.