Nifty faces strong resistance above 5,390 level

As expected, the Nifty February futures faced strong resistance above 5,420 and failed to hold the 5,350-level support to close at 5,314 due to uncertain near-term sentiments. The only positive signal for bulls was the volume-weighted average price of 5,354, indicating strong support below 5,350. The trading pattern in Nifty February futures showed strong resistance above 5,390. The break of 5,350 led to fresh weakness into 5,200-5,185.

Put and call options data show unwinding of short positions in the 5,300-5,500-strike put options and strong short build-up in the 5,300-5,400-strike call options. The 5,200-strike put added 281,400 shares in open interest (OI), despite a trading volume of 12 million shares. The index may get support at 5,100 as same-strike put options added 1.5 million shares in OI through sell trades.

The trade summary matrix (TSM) indicates buy trades in the value area (5,334-5,390) and below the lower band of the value area. The February futures, however, saw strong selling pressure above 5,390. It means there may be fresh short-covering in the 5,400-strike put options.

The Nifty February futures settled at a marginal premium to the spot and added 796,450 shares in OI, mostly through buy trades, indicating short-covering at the lower level. TSM data show change of hands in the initial balance range (5,390-5,421) and buying in the value area. The initial balance range accounted for 15 per cent volume and 23 per cent time-price opportunities, which hint at lack of interest from floor traders at these levels.

Significant weakness was also seen in the price correction in key index stocks on Tuesday. The key heavyweights — such as Reliance Industries, ICICI Bank, Mahindra & Mahindra, Larsen & Toubro, Tata Steel and Tata Motors — closed in the red and price projection using volume and TPO data suggests fresh correction.

The TPO data show a price level of Rs 899 and resistance at Rs 924 for the February futures of Reliance. ICICI Bank may decline to Rs 935 and face resistance at Rs 970. Larsen & Toubro may see a volume-based dip around Rs 1,482 and resistance at Rs 1,525. Tata Steel may fall around Rs 604-596 and Tata Motors around Rs 1,078, according to the volume picture chart.