Overbought markets likely to stay range-bound

The Nifty faced strong resistance above 5,300 and closed in a Doji pattern, indicating indecisiveness among participants.

Nifty January futures closed at a marginal premium to the spot with an 1.8 per cent rise in open interest, mostly through change of hands, indicating short build-up. Technically, the market is overbought and hence we may see range-bound trading at current levels. The index has support at 5,200 and resistance above 5,300.

Options traders expected strong resistance above 5,300 as change of hands was through sell-side trades in the 5,300 strike call. The 5,400 call added 405,450 shares in open interest, mostly through sell-side trades, as traders expected the Nifty to face strong resistance around 5,400. A significant addition in open interest was in the 5,200 put, through a blend of buy and sell trades, as participants hedged long positions in index futures.

Fertiliser, sugar, real estate and telecom stocks moved up on long build-up and short covering. Balrampur Chini and Shree Renuka Sugar saw long build-up while Bajaj Hindustan was up on short-covering. DLF was up 2.3 per cent on long build-up of 1.12 million shares while Unitech rose 0.70 per cent on short-covering. Bharti Airtel, Idea Cellular and Reliance Communication moved in a narrow band on profit-booking and short-covering.

The benchmark indices stayed range-bound the entire day while the broader markets outperformed. Technically, the markets remain overbought on short-term studies and hence the Nifty may see a minor pullback from either 5,300 or from the next major resistance of 5,370, says Gautam Shah, a technical analyst at JM Finance.

Hourly indicators have seen negative divergence that could lead to some intra-day volatility in the next few days. Overall, the Nifty is approaching crucial resistance levels and hence we may see range-bound trading in the near future.