Buying support at low levels

F&O OUTLOOK

The markets recovered sharply after initial jitters, thanks to strong buying from local mutual funds and support from the foreign institutional investors (FIIs).

Both Sensex and S&P CNX Nifty gained significantly on Tuesday as the FIIs, which were net sellers in the cash segment during the last two days, turned net buyers. The mutual funds remained net buyers, and have pumped in Rs 1,929 crore in the last three days.

The derivatives data show that the FIIs covered their short position on Tuesday as the discount between the Nifty spot and the Nifty August futures has declined from around 40 points to 18 points at close.

Provisional data show that the open interest in the Nifty August futures contracts increased by 19.77 lakh shares at 432 lakh shares. The put/call ratio of the Nifty open interest moved up marginally to 1.46 from 1.44. The five-day (52) and fourteen-day (58) relative strength index (RSI) do not indicate any positions in the markets.

On Tuesday the markets had a break-out from the trading range, and within the channel, they have given a smart rally. It is difficult to predict anything, but time will tell if this was a technical bounceback.

The immediate support for Nifty is at 4,400, while the trend line support is at 4,338, which is 50 day moving average and also a 20 day-low swing. The technical support is at 4,463 and resistance at 4564 levels.

A strong bullish candlestick emerged on Tuesday and the close of the candlestick was above the previous day's high level. This indicates that there was buying support at lower levels.

According to Anand Rathi derivatives analysts, based on the chart pattern developed to date, the current rise appears to be corrective in nature and hence, one may use tight stop-losses for long positions. The Nifty finds support at around 4475.

A close below this level may have bearish implications. On the resistance front, the Nifty finds resistance at around 4550 and thereafter at around 4575 level.