Nifty likely to stay above 3,400-level

As expected, the Nifty closed above the 200DMA (daily moving average) level of 3,445 on strong buying in key index heavyweights. The Nifty can achieve 61.8 per cent Fibonacci retracement level of 3,725 of its fall from the medium-term high of 4,650 on August 12 to the low of 2,252 on October 27.

The Nifty’s journey above 3,700 levels is expected to be driven by index heavyweights such as Reliance Industries (RIL), ICICI Bank, State Bank of India (SBI), Larsen & Toubro (L&T), Bhel and Tata Steel, which closed at the day’s high level today on short-covering. The Nifty too closed near the day’s high, indicating synergy.

The April futures of RIL gained 3.14 per cent and shed an open interest (OI) of 120,900 shares, indicating short-covering. Traders also covered their short positions in 1,800 call options, paying a premium of Rs 77 and building long positions at 1,860 call at a premium of Rs 60 per share. This means traders expect RIL to move above Rs 1,900 levels from the current level of Rs 1,833.

The Nifty April futures continue to trade at a premium to the spot and carry an OI of 44.20 million shares, which is the highest since March 2008. The Nifty May futures, which closed at a 2-point premium to the April futures, built up long position of 545,450 shares today. This means futures and options (F&O) players are expecting the index to go up further.

The traders were seen covering short positions at 3,400 call options and selling 3,400 put, suggesting that the Nifty now can trade above 3,400 levels in the near future. The 3,500 and 3,600 strike call options witnessed unwinding of short positions during the intraday trade, while 3,700 call options added an OI of 375,200 shares through buy bids. This confirms our bullish outlook on the Nifty.