Nifty to trade in the range of 2,600-2,800

The cautious approach by F&O traders ahead of the market holiday on Monday helped benchmark indices to close marginally above the crucial support levels. The Nifty closed at 2,736 from intra-day low of 2,709, while Nifty futures closed at 2,722 after declining below the 2,700 level.

The technical indicator shows a new bearish reversal pattern developing on the hourly chart with support around 2,750 on the Nifty futures. Once broken, the Nifty could correct 100-150 points in a matter of few days, says a technical analyst from JM Financials.

Technically, the markets remain in the oversold zone and hence the possibility of a pullback on account of shortcovering, is possible. This probably may happen after the expiry of February series.

However, the bulls can derive some comfort as we saw unusual volumes in the 2,700 and 2,750 call options. The 2,700 call options added 1.53 million shares in open interest at an average premium of Rs 55 a share while the 2,750 call added open interest of 421,150 shares at a premium of Rs 30 a share. This means the index has strong support in the trading range of 2,700- 2,755.

The F&O traders expects technical pullback in March series contracts as we saw long build-up in the 2,800 and 2,900 call options of March series. The long build-up in the 2,800 and 2,900 call options is probably to mitigate short build-up in the Nifty March futures.

The March futures, which continue to trade at a discount to February futures has added open interest of almost 10 million shares in the last three trading days, which indicates short build-up.

The activity in the Nifty futures indicates significant addition of short positions towards the weekend. The overall market cost-of-carry recovered towards the weekend on the back of some short covering in the last hour of Friday trading due to the extended weekend.

According Niitn Murarka, derivatives head of SMC Global, the current accumulation pattern indicates strong supports for Nifty is placed at the 2,700 levels. However, if index closes below 2,700 than we may see sharp sell off up to 2,400 level. The index is expected to hover between 2,600 and 2,800 levels in the coming week.