Nifty may fall to 5,600 in near future

The Nifty closed below 5,800 on strong selling pressure after Infosys Technologies reported not-so-encouraging net profit growth for the December 2010 quarter. The selloff in Punjab National Bank, State Bank of India and ICICI Bank put the bulls, who were expecting a pullback, on the back foot. The index is expected to revisit its November 26 low of 5,690. If it failed to hold that level, the next support is likely around 5,637, the volume picture chart suggests.

Change of hands in the initial balance (IB) range (5,808-5,869) suggests that the Nifty futures may face strong resistance above 5,800. The value area (5,766-5,840) saw buy-side trades in the range of 5,766-5,808 and sell-side trades above 5,808, indicating the index may get support below 5,800.

The Nifty futures saw short-covering from day traders below the lower band of the value area, with the trade summary matrix showing buy-side volumes below 5,766.

The market picture chart for the day hints at a level of 5,937, based on price projections using time-price opportunities (TPOs). However, an intra-day volume-based selloff during the afternoon can take the Nifty futures to around 5,657, according to volume picture chart. The spot Nifty is expected to witness strong support around 5,707. On the upside, the index may face resistance around 5,917-5,912.

The premium for the Nifty January futures slipped from 15-20 points earlier to just four points on Thursday, signalling that bears have started building short positions on expectations of further weakness. Bulls seem to have unwound long positions, while bears have gone for fresh shorts, as futures added 1.11 million shares in the open interest (OI) at close, of the intraday build-up of 2.58 million shares.

The call and put options data show significant call writing in the 5800-5,900 call options. The 5,700-strike call options also added OI of 928,200 shares, mostly through sell-side trades, which hints at a loss of support for the index at that level. On the other hand, unwinding was observed in the 5,800-6,000-strike put options and change of hands in the 5600-5,700-strike put options. This suggests a weak undercurrent, with the index likely to fall to 5,600 in the near future.