Traders expect a strong rally

The Nifty closed on a strong note due to long build-up from big traders. The 50-share index saw selling pressure below 5,130. Short-covering was also seen when trading renewed above 5,160. The Nifty May futures, which closed at a discount to the spot, added 7,10,000 shares in open interest (OI), mostly through buy-side trades from big traders, which indicates long build-up. The Nifty is now expected to hover around 5,200 and is likely to face resistance above 5,206.

The intra-day trading volume in May futures indicates traders expect a strong rally ahead. Market data sourced from Bloomberg also suggests strong buying interest above the mid-point value (5,132) since the point of control (POC) – as represented by most traded time price opportunities (TPOs) – was higher than the mid-point value.

TPOs are price ranges at particular times during the day. Traditionally, the trading day is divided into 30-minute sessions and the price availability at any particular time is known as a TPO.

The volume at POC areas (5,145-5,160) accounted for 32 per cent of the day’s trade. Bloomberg data also suggest there was short-covering from big traders when the index moved above the 5,160 level. It's no wonder then that the 5,200 put options saw short build-up, while the 5,300 put added 1,24,950 shares in OI on expectation of a strong movement above the 5,200 level.

The 5,200 call saw long build-up, while the 5,300 call witnessed unwinding of short positions. The 5,400 call options saw strong volumes, mostly buy-side trades, which indicate hedging of short positions. However, there will be strong resistance between 5,200 and 5,400 on the basis of an OI in call options, while support based on put options OI is likely to be at 4,900-5,100.