Strong resistance at 5000 levels

F&O OUTLOOK

We had indicated that short covering may lead to a minor pull back on Wednesday. The Nifty was up 91 points to close at 4,929, while the Sensex gained 341 points to 16,949.

The discount between Nifty spot and futures declined to 20 points from 42 points, while the open interest in Nifty February futures came down by 19.29 lakh shares, indicating short covering by bears.

According to Siddhartha Bhamre, derivatives and equity analyst of Angel Broking, the rise in Indian markets particularly in large cap stocks has been on account of short covering.

The strong global cues also aided the sentiment, he said. However, one should not get carried away as Wednesday's upsurge was largely on account of short covering rather than value buying.

The implied volatility (IV) in options declined from 68 four days ago to 47 now, indicating more options writing than buying. Call options writing was seen at 5,000 (open interest up 55 per cent) and 5,100 (open interest up 82 per cent), indicating resistance at those levels.

Support was seen at 4,800 and 4,900 on the Nifty, going by the increase in Put open interest. Short covering in Puts and addition of Calls at the strike price of 5000, indicates the growing resistance at this level. Not much interest is visible in out-of-money put options, suggesting that no meaningful support has yet emerged in the market.

According to Kamlesh Langote, technical analyst at vfmdirect.com, a slower retracement of Monday's correction would means weak rallies.

This could encourage bers to go short at higher levels. The market support is near 4,750, while there is resistance at 5,000. The breakout level for Nifty is 5,000, which could take it to 5,100.