Strong volume based upside seen at 5,760

As expected, stability has returned to the market, thanks to strong buying in technology stocks and some long positions build up by FIIs in the index futures and stock futures. The Nifty, after consolidating around 5,660-5,700, closed at 5,728 on short covering by floor traders and value buyers. The January futures settled at a 10-point premium to spot and shed 1.84 million shares in open interest, mostly through buy-side trades from liquidity providers and value buyers. The top traders covered their short positions above 5,700, the trade summary matrix (TSM) indicates.

The initial balance range (5,688-5,728) saw 75 per cent volume and TPOs, suggesting that floor traders covered short positions. The value area also saw strong buy trades in the range of 5,686-5,716. The futures closed above the upper band of the value area with 28 per cent volume and 16 per cent TPO. This means significant short covering was seen even above the 5,700 level. Nevertheless, the F&O participants expect a strong recovery going ahead, and hence they have covered short positions in Infosys Technologies, Tata Motors, State Bank and Tata Steel and build up long positions in TCS, ICICI Bank and Hindalco, etc.

The market should see fresh consolidation above 5,700 and strong support at 5,660 in the case of a correction. The market picture chart suggests that the Nifty futures may see the volume-based upside around 5,807. The spot Nifty is expected to get TPO-based support at 5,660. However, a strong volume-based upside is seen at 5,760.

The market expects the Reserve Bank of India to give favourable guidance on its liquidity management strategy. If the market gets this comfort from RBI, it would be positive to pull in domestic investors and also for a reversal back into 6,000, say J Moses Harding, Head-Global Markets Group, IndusInd Bank.

The 5,600 and 5,700 call options witnessed short covering, which is hinting that the index may get strong support at these levels. The 5,800 call saw a change of hands and the 5,900 call options saw short covering at a lower premium. Put options traders booked profits in the 5,600-5,800-strike put. The trading volume in the 5,900-6,100-strike put options was significantly low, which indicates that the traders are not willing to buy in the money puts on expectations of a strong undercurrent.