The Nifty September futures closed above 4,900 on short covering above 4,850. Healthy global equities, which followed the US Federal Reserve indication that the US economy was poised to grow in the second half of 2011, also lifted investor sentiments. We had indicated in our Sunday edition that strong global cues would lead the significant recovery to the 4,900 mark.
The close above 4,900 should give bulls the much-needed comfort to strategise and take the index above the 5,000 mark. The trading pattern in the September futures showed buying from top traders above the 4,900 levels, and the decline in open interest suggests short covering from these at higher levels. Therefore, if global stock markets closed in the green, we are likely to see strong opening tomorrow.
The market saw strong buying range extension after opening in the middle of the previous value area. Range extensions occur when the market moves above or below the initial balance (IB), which is determined by the opening session. A range extension is created as soon as price is advertised higher or lower, outside the IB range, by other time frame traders. If the market rallies above the IB range, it’s a buying range extension.
The range extension has given a strong buy signal because buying took place within and also above the previous day’s value area.
The market undercurrent has changed from sellers/bearish to buyers/bullish and that would take the Nifty above 5,000. The Nifty is expected to test 4,977 and even move further at around 5,022, suggested the market picture chart sourced from Bloomberg. The support will be at 4,850 and at 4,802, thereafter. The 61.8 per cent Fibonacci retracement level from the recent fall from 5,246 to 4,719 is seen at 5,045.
September futures closed at 14-point premium to spot and added open interest (OI) of 2.40 million shares during the course of the day. There was unwinding of 1.02 million shares in the settlement period. This suggests unwinding of short positions and build-up of fresh long positions by new players. The 40 per cent volume in IB range (4,802-4,874) and multiple point of control (PoC) also hinted at a price-based short covering from bears.
Options traders build-up fresh short in 4,800-4,900 strike put options and initiated a short covering in the 5,000 strike call, as participants expected the current bear phase may be halted for a while.