Nifty faces strong resistance above 5,440 level

Last Updated: Mon, Feb 07, 2011 20:11 hrs

As expected, the Nifty moved in a tight band — faced strong resistance above 5,440 and support near 5,380 — as traders preferred to stay away from the market. The Nifty finally closed in a Doji pattern, which indicates indecisiveness among traders. The near-term sentiments continued to remain weak due to pressure on growth momentum and political uncertainties.

The trading pattern in the Nifty February futures is hinting at a range-bound market and consolidation around 5,380-5,440. Lack of appetite from both domestic and off-shore investors, and the risk of test/break of 5,350 for extended weakness into 5,200-5,185, was forcing strategic investors to stay away from the market, says J Moses Harding, head-global markets group, IndusInd Bank.

The weak sentiment was observed from the trading in the put and call options. The data show lack of interest in buying out-of-the-money call options, but strong appetite for out-of-the money put options. The trade summary matrix (TSM) indicates buy-side trade in the 5,200-5,300-5,400-strike put options. It may be to protect long build-up in the February futures, in case the index breaks below the 5,350-level. Traders, however, sold 5,500-strike put at Rs 150 premium to show strong support at 5,350.

The Nifty February futures closed at a marginal discount to spot and added 1.58 million shares in open interest (OI) during the intra-day trade. However, futures settled at a three-point discount and saw unwinding of 265,800 shares in OI. The TSM data shows buying in initial balance range (5,378-5,420) and value area (5,390-5,420), which indicates short covering from bears. The initial balance range accounted for 82 per cent volume and value area 72 per cent volume, indicating strong consolidation around these levels.

The market picture chart hints at upside resistance at 5,442 and lower-end support at 5,365. The spot Nifty expected to get the TPO-based support at 5,373 and volume-based upside around 5,450. However, strong sell-side trades above 5,420 in the Monday session is hinting at resistance for index above this level.

The unwinding of OI in 5,500-strike put options signals high-level resistance. Traders sold 5,400-strike call options as they expect the market likely to face resistance above that level.

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