The Nifty recovered sharply from its support of 4,820 to close at 4,900 on short-covering and positive global cues. It, however, faced strong upside resistance at 4,930 on profit-booking in key index heavyweights.
Technically, the Nifty has retraced 23.6 per cent of its recent fall from a high of 5,310 to 4,766. The Fibonacci price projection levels suggest the Nifty can face strong resistance around 4,975, which is 38.6 per cent retracement level of its recent fall.
However, indecisiveness remains as the Bombay Stock Exchange Sensex and several most-traded stocks such as Reliance Industries, ICICI Bank, Infosys Technologies, DLF, Hindalco and Larsen & Toubro closed in a Doji pattern.
The Nifty February futures closed at the same level as the spot, compared with a discount of seven points on Friday. Despite trading volume of 23.45 million shares, open interest remained unchanged, indicating short-covering by bears.
Trading volumes in call options indicate change of hands, mostly from sellers to buyers, which is a positive sign. The 4,900-5,000 calls together added 581,750 shares in open interest, mostly through change of hands, indicating long build-up. The 5,000 call saw short-covering when the Nifty moved above 4,900. This means futures and options (F&O) participants expect the index to move around 5,000.
The 4,600-4,800 puts have seen significant additions in open interest in the last couple of sessions despite the Nifty posting an intra-day low of 4,766 on Friday. Bloomberg data suggest that participants are selling put options at these levels as they expect the index may not move below 4,800 in the near future.
According to technical analyst Gautam Shah of JM Financial, the Nifty and the Sensex have never fallen below the weekly moving average of 4,700/16,100 in the last 10 months and so the downside from the current levels is limited as long as these averages are maintained.