Upswing on the cards

F&O Outlook

The markets ended on a firm note on Friday despite intra-day choppiness. With the Nifty (January) futures closing above 6,200 and short-covering taking place in Call options, there could be a sharp upswing on Monday. The Nifty futures shed open interest of 5,000 contracts on a weekly basis and almost 10,000 contracts on an intra-week basis. Most of the short covering took place when the Nifty hit an intra-day low of 6,115.

It may be noted that Nifty crossed 6,300 levels to register a new high of 6,357, while Nifty futures faced a strong resistance at 6,336. The bears covered their shorts in the last three days when the Nifty made new intra-day highs on three consecutive days. Short covering of Nifty Call options took place at the strike prices of 6,300, 6,400 and 6,500 on Friday, with the open interest declining by almost 500-1000 contracts. Short covering was seen in out-of-the money Calls, whereas in-the-money Call buying took place at the strike price of 6,200 with an OI addition of 7,277 contracts.

Kamlesh Langote, technical analyst, vfmdirect.com, pointed out that the market traded at resistance levels of 6,220 despite intra-day choppiness. Coming on a Friday, this is certainly a bullish indication for at least a day. A failure to hold above this level or a gap down opening could lead to a correction.

The market movement was confined to a rising wedge (two to three days of new intra-day highs, followed by a correction) last week and this normally portends bearishness. As long as markets trade within a range, volatility compression could eventually lead to an explosive breakout.