Nifty in strong support zone

The Nifty opened in the red on weak global cues, but received strong support around the previous day’s initial balance (IB) range to close at 5,069, following a strong opening at the European markets. The recovery above 5,032 was accompanied by strong volumes from other time-frame traders, who seemed to have covered short positions when the index moved up convincingly above the upper band of the value area (4,952-5,032). The September futures saw buying range extension (a sign of commercial buying), as the market rallied above the IB range after prices had slipped below the lower band of IB range.

The September futures closed near the most crucial resistance level of 5,077, after getting support at 4,931 and, hence, the market would see the crossover of that level when it opens for trading tomorrow. This would lead to a strong opening on Wednesday if the global markets closed in the green. The market picture (MKTP) chart projected a time-price opportunity (TPO) based level of 5,097, while the volume-based upside could take the Nifty around 5,150.

There was no significant selling pressure in the morning session from floor traders, but short covering was seen in the afternoon session when the September futures started convincingly above the 5,000 mark. The trade summary matrix showed short covering from top traders above 5,000. The market profile for the day suggested a standard trend day, where prices constantly moved up and there was no interest in moving these in the opposite direction.

The September futures closed at par with spot, and after witnessing significant short covering in intraday trade, the futures added 754,500 shares in open interest in after-session settlements. This clearly hints at fresh long by bulls and fresh short covering by bears. Index heavyweight Reliance Industries moved up strongly after getting support in the 785-798 range. The trading pattern pointed at fresh upside around 858 with continued support in the range of 778-790.

Options traders covered short positions in 5,000-5,200-strike call options, when the Nifty stated a volume-based recovery above the 5,000 mark. Short covering was significantly higher in 5,100-strike call, as traders expected strong up-move in the market. The 5,100-strike put added 334,700 shares in open interest, mostly through change of hands, indicating a short build-up by new players.