Intra-day pullback not convincing

The Nifty recovered sharply from the most critical support level and closed at 5,055 due to a strong opening by the European markets. Technically, the Nifty can test the 5,089 and 5,118 levels. These two milestones are 50 per cent and 61.8 per cent Fibonacci retracement levels of the recent fall from 5,212 to 4,966.

The downside support and upside resistance for the Nifty, according to the open interest (OI) build-up in put and call options, remains around 5,000 and the 5,200 respectively.

The intra-day pullback, however, remains unconvincing as the average level per trade for the day in the Nifty May futures remains at around 5,008 while the index closed higher at 5,060. This means the sharp recovery in the index from the day’s low of 4,963 was mostly on account of the strong opening seen in the European markets, which led to short covering in the derivatives segment. Bloomberg data shows a modest 20 per cent volume increase above the 5,040 level, mainly due to short covering.

The Nifty May futures closed at par with spot and added 1.39 million shares in OI, indicating creation of long positions. The buy-side trading volume around the value areas (4,970-5,040) suggests a long build-up at the lower levels.

However, the intra-day pullback may not be sustained above the 5,100 level as the put options traders have taken short positions in the 5,100 and the 5,200 puts. Support remains at the 5,000 level as this strike put holds maximum OI among the put options. Larsen & Toubro was the pick of the day, gaining 5.6 per cent on a long build-up in the May futures. The futures closed at Rs 1,613 with 56 per cent of the traded volume changing hands above the mid-point level of Rs 1,545. Price projections using volume indicates that L&T can face resistance at Rs 1,727. The State Bank of India stock saw short-covering above Rs 2,196. The May futures of SBI closed at Rs 2,241 on short-covering. Reliance Industries moved in a narrow band on lack of buying at the current level. The price projection using time price opportunities suggests support at around Rs 1,000.