Possibility of fresh pullback in near future

The Nifty closed above its support of 4,830, indicating that there is possibility of a fresh pullback in the near future, while strong support continued at 4,800. There is strong resistance at 5,000, but build-up of open interest in the 4,900 strike call in the last couple of sessions suggests that 4,900 may act as resistance level in the near future.

Theoretically, build-up of open interest in put options indicates support while such a build-up in calls suggests resistance. The trading pattern in puts and calls options in the last couple of days suggested the participants sold the 4,800 strike put and the 4,900-5,000 strike calls, which indicate strong support and resistance levels, respectively.

The pullback rally which took the Nifty above 4,900 yesterday fizzled out on Thursday on account of weak global cues and profit-booking by futures and options (F&O) traders. However, trading pattern in Nifty February futures suggests more buy-side trades in Nifty futures below 4,850. This is because while Nifty February futures closed at 4,838, the weighted average price for the day was 4,870, indicating no panic-selling below 4,850.

Short-covering remained elusive as Nifty February futures continued to trade at a discount to the spot. However, the open interest in Nifty February futures increased by 2.5 per cent (743,100 shares), mostly through buy-side trades below 4,850, indicating build-up of long positions by bulls at lower levels. Bloomberg data suggest profit-booking by traders above 4,900, indicating resistance at higher levels.

The February futures of Reliance Industries (RIL) fell 1.74 per cent and settled at Rs 1,018, marginally below their support of Rs 1,020. The decline was largely due to profit-booking, Bloomberg data suggested. Traders covered short positions in RIL around Rs 1,025 on expectation of continuation of support around Rs 1,020. The February futures of ICICI Bank declined 1 per cent on profit-booking. Bloomberg data suggest support for ICICI Bank around Rs 830.