Nifty set to move close to Jan high

The Nifty came out of the trading range today and is set to move towards its January high of 5,310, probably next week. The March futures closed at 5,159.80, which is above the upper band of the value line area (5,114 to 5,142), indicating the bulls have taken the initiative by absorbing all sell-side trades to take the Nifty higher. According to the market activity theory, initiative activity occurs when players buy at or above the value line, which indicates opinion on future direction. However, the time-price opportunity (TPO) chart suggests the Nifty may face strong resistance around 5,175 and get strong support around 5,095.

The bears seemed to have covered short positions in Nifty March futures, which closed at a premium to the spot and shed one million shares in open interest. The open interest in March futures, at 25.92 million shares, has not risen substantially after the Budget, which indicates the bears have not initiated convincing short positions. The trading pattern in Nifty call and put options in the last couple of days suggested the bulls were hoping for a breakout above 5,147 to take the Nifty above the January 10 level. The 5,100- and 5,200-strike calls saw short-covering and change of hands through buy-side trades, indicating long build-up.

Key stock futures, such as ICICI Bank, Infosys Technologies and Reliance Industries, saw rapid directional movement and closed above the value line area for the day. Bloomberg data suggest that bulls built long positions in these stock futures at higher levels on expectation of a fresh rally. The TPO chart sourced from Bloomberg suggests that ICICI Bank can move up around Rs 941, Reliance Industries around Rs 1,040 and Infosys Technologies around Rs 2,715. The participants have built short positions in Hindustan Unilever, which is expected to correct to around Rs 222 from the current level of Rs 229.50.

The strong undercurrent in the market can be seen from build-up of open interest in 5,000- and 5,200-put options through sell-side trades. The open interest in the 5,000-put rose by almost two million shares to 12.1 million shares, while 5,100-puts added 1.31 million shares in open interest to take the total to 6.50 million shares. The 5,200-put added 0.60 million shares in open interest.