The Nifty staged a smart bounce-back after trading below the 4,400 levels for a while in the morning session. The recovery was very fast and within two hours of trade, the index crossed the 4,500 levels and remained above this thereafter.
Only five of the Nifty 50 stocks ended the day in the red while as many as 11 gained more than 5 per cent each. The top losers on Monday were top gainers today, which indicated that yesterday’s selloff was largely due to profit-booking.
It is difficult to say where the Nifty is heading now as it has once again showed consolidation around the 4,500 levels. Trading in call options suggests that the Nifty has the potential to go above the 4,600 levels once again and if it closes above the 4,650 levels any time during the week, it can go much higher before the presentation of the Union Budget. The call writers were seen unwinding shorts at the 4,500-4,600 strikes calls, which indicates fresh upside. The 4,700 calls and the 4,800 calls also witnessed unwinding as traders expect the index to go up further after consolidation at around the 4,650 levels.
The 4,500 put added an open interest (OI) of 514,700 shares, mostly through sell orders. The 4,300 puts and the 4,400 puts also witnessed a fresh OI build-up, which suggests that the Nifty has strong support around the 4,300-4,500 levels.
Profit-booking was visible on Monday in most counters but index futures witnessed formation of short positions. The Nifty June futures, which settled on a par with the spot during the close-off session, shed OI of 146,050 shares compared with an intra-day built-up of 2.34 million shares. This suggest that bears have covered their short positions.