Strong rally likely if Nifty sustains above 5,500

As expected, the Nifty futures consolidated between 5,446 and 5,505 and closed on a bullish note, as bears covered short positions at higher levels. The undercurrent changed dramatically after the breakout above 5,500. The trade summary matrix (TSM) indicate significant short build-up around 5,460 and unwinding when the Nifty did not break below 5,500.

Interestingly, around 52 per cent of the day’s volume changed hands in the first two hours at the weighted average price of 5,460 and the remaining 48 per cent, thereafter, at an average of 5,526. The volume bar chart indicates significantly high volume above 5,500 after three trading sessions, indicating build-up of support around the 5,500 level.

Thursday’s pullback and close above the most crucial resistance level have changed the near-term outlook in the favour of bulls. The trading data in the Nifty February futures suggest consolidation around 5,512-5,530 and a breakout at 5,600 if the index sustains above 5,570. The reversal is possible only if the market breaks below 5,480-5,460. For spot Nifty, volume-based target is seen at 5,555 and the time-price opportunities (TPO)-based rally around 5,592.

TSM show buy trades from liquidity suppliers in the initial balance range (5,425-5,462). Interestingly, the range was below the lower band of the value area (5,470-5,536) and accounted for 21 per cent of volume.

The value area saw buy-side trades, with 70 per cent TPOs and 62 per cent volume. The market picture chart also hints at a strong undercurrent, with volume-based rally around 5,605 and TPO-based resistance at 5,621.

Trading in call and put options hints at a strong rally if the Nifty sustains above 5,500. Short-covering was seen in the 5,500- and 5,600-strike call options. Put writing was evident in the 5,400-5,500-strike put options, with profit-booking in the 5,600-strike put options.

Reliance Industries saw significant strength in the range of Rs 927-944 and closed higher at Rs 947 on short-covering of around 0.50 million shares. The recovery is expected to continue, with the stock likely to move up to around Rs 964, based on TPO price projection.