Breakout likely this week

The Nifty fell by almost 3 per cent from today’s high on a weak opening for European markets and lower Dow futures. Foreign and domestic institutional investors triggered the fall by booking profit in HDFC, HDFC Bank and ONGC. The index, however, maintained its support of 4,600 and closed at 4,625, indicating lower-level buying by bull operators.

Nifty September futures closed on a par with the spot, indicating short-covering at lower levels. It added an open interest (OI) of 2.28 million shares out of an intraday position of 3.44 million shares, suggesting that some traders have bought futures to build long positions.

According to Gautam Shah, technical analyst at JM Financial, the daily moving average was providing support to the Sensex in the 15,300-15,500 zone. That apart, pattern and trendline studies were giving support to the Sensex at 15,300 and the Nifty at 4,580, something crucial for the indices, Shah said. He expected a big-bang breakout above the recent high anytime later this week.

Options traders were seen building significant positions at 4,700 and 4,800 strike calls. These calls together added an OI of 2.55 million shares, and the Bloomberg data on intraday buy and sell volumes suggested that the build-up was mostly long. Further, 4,900 and 5,000 calls witnessed change of hands and also build-up of long positions. This means, traders who expect a breakout above 4,730 in the near future are building long positions.

The 4,600 put option today continued to add fresh OI through sell-side trade, indicating that the index might not close below 4,600 in the near future. The 4,700 call too added OI in the last couple of days through buy-side trade, indicating hedging of long positions in the Nifty futures.

via Business Standard