Support expected at 5,300 level

As expected, the Nifty June futures faced strong resistance above 5,425 and settled at 5,380. The volume in June futures dropped by 33 per cent, or, 6.66 million shares as speculators preferred to stay away. It was a net selling day and the dominance of other time frame trades was clearly seen from higher TPO counts above the point of control (PoC), the area of the most-traded price. According to a market analyst at IndusInd Bank, the Reserve Bank’s preference for inflation over growth and the resultant margin squeeze on companies will keep the bearish momentum intact till the next rate rise is out of the way.

This means the stock market will be on a downtrend during July-September 2011. The floor is expected to be dominated by bears and buying would emerge only to square shorts. The market is expected to feel an extended weakness into the next week as the Nifty closed below 5,400, with significant volume-based selling above 5,420 by other time frame traders. The volume-based decline in the last four trading sessions, from a high of 5,535 to a low of 5,361, is expected to take the Nifty June futures around 5,300 next week. The upside resistance is seen at 5,420 and 5,460 thereafter.

The options traders have geared up for the fresh downside next week as the 5,100-strike put options saw change of hands and buying activity when the index slipped below 5,400. The 5,200 and 5,300-strike put options saw significant buying to hedge long positions in the June futures. The buy-side trade in the falling market, mostly to cover short positions, was seen in the 5,400 and 5,500-strike put options, clearly hinting at a higher level resistance for the market. Lack of interest in the 5,300-strike call options suggests a possible breakout below 5,300.

The Nifty June futures settled at a 14-point premium to spot and added 219,300 shares in open interest (OI) through change of hands and selling above 5,400, indicating short build-up at higher levels. The market saw significant selling pressure in the initial balance (IB) range (5,380-5,421) and also in the value area (5,370-5,398), indicating strong resistance above 5,400. The OI build-up at put and call options hints support at 5,300 and resistance above 5,460.