Nifty may test 5,350 today

The S&P CNX Nifty closed above the 5,400-level at 5,416 on strong gains in State Bank of India and Tata Motors, as well as short-covering at lower levels. The August futures witnessed short-covering below 5,380 and closed in a Doji pattern as traders expected the intraday recovery to be short lived. Overall, sentiment remained subdued after government data showed a slowdown in economic growth.

Both European markets and Dow Jones futures turned negative after opening on a positive note. The SGX Nifty was trading at 5,399 in the over the counter facility of the Singapore Stock Exchange. This hints at a soft opening for the Nifty on Friday. In fact, the 50-issue index is expected to open below 5,400 and is likely to test the 5,350-level on Friday. The build-up of open interest (OI) in the 5,300-strike put suggests that the index is likely to get strong support at 5,300.

The volume in the Nifty August futures rose by over five million shares as bears preferred to cover short positions when the Nifty slipped below 5,400. Profit-booking was seen around 5,385-5,415, while participants initiated fresh shorts above 5,415. According to time-priced opportunity (TPO) data, strong resistance is expected in the Nifty above 5,432.50, while large volume-based supply is expected to come around 5,472.

A technical analysis suggests the Nifty could trade between 5,380 and 5,450. This sideways movement is reflected in an unchanged OI in the August futures, despite an intraday build-up of 1.89 million shares. The trading pattern in the last two TPO sessions of 30 minutes each also show resistance in the Nifty above 5,442.

The 5,400-5,500-strike call options saw some unwinding of short positions as participants do not see any significant downside for the Nifty from the current level. Some buy-side trades were seen in the 5,200-5,300-strike put, mostly to protect long positions in the Nifty futures. The participants also covered short positions in the 5,500-strike put on expectation of a limited upside from the current level.