Bears take short cover position

F&O OUTLOOK

After a week-long rangebound trading, the markets witnessed a decisive breakout on Friday. The Nifty February futures series closed 4.67 per cent higher to 5320.80 on short covering with discount to spot Nifty.

Despite trading volumes of 5.67 lakh contracts, the open interest in Nifty futures has declined by 12,886 contracts indicating short covering by bears.

On Friday's breakout has been the fastest after the weeklong weakness and hence it is a technical relief rally. According to Kamlesh Langote of vfmdirect.com, "If the current breakout has to be sustained decisively, the Nifty has to close above 5,400 levels on Monday. If it fails to do so, we may see a sharp correction thereafter."

There are chances of the Nifty rallying further by 200 to 300 points before in for corrections, says Kamlesh. The 600 points surge in Sensex and 200 points rally in Nifty, however lack participants as well as restricted to large cap group. The trading volumes on F&O segment of NSE declined to almost 20 months low at Rs 35,800 crore.

Only during the May 2006, the average daily trading volumes declined below Rs 35,000 crore.

The breadth of the market remained restricted to index stocks with 80 per cent of Nifty and 90 per cent stocks were gainers, while only 40 per cent of actively traded stocks participated in the rally.

The Reliance pack have participated the rally with February futures of Reliance Industries up 2.77 per cent, Reliance Energy up 2.04 per cent and Reliance Capital up 3.87 per cent on fresh long positions. Reliance Communication was up 3.77 per cent on short covering.