Bull-bear tussle seen at 5,500 level

F&O OUTLOOK

We had predicted a 200-300 point rally in our weekend analysis if the Nifty broke above the 5,400 level on Monday.

Our indication was based on a technical breakout and short covering in several of the index's key stock futures on Friday. The Nifty opened above 5,400, rose to a intra-day high of 5,530 and then retracted on profit booking.

After achieving the first target, the index closed above 5,400 level. Strong resistance is seen at the 5,600-level. A rally beyond 5,600 will take the market to 5,800-6,000 levels.

However, this is still a technical bounce back, or relief rally and, according to Kamlesh Langote of vfmdirect.com. A time-wise correction is in the offing.

Derivative analyst Anand Kuchelan at PINC Research says the market has been consolidating around 5,300 for the past several days and the bounce back was imminent. The short covering on Friday and on Monday saw Nifty trade above 5,300 and 5,400, respectively.

"However, some profit booking by traders was seen when the Nifty crossed 5,500," adds Kuchelan. "The open interest in Nifty February futures declined by 26,800 contracts on account of short covering."

The Nifty PCR improved on Monday from 0.97 on Friday to 1.02 due to buying of puts and short covering on call options. Put writing was seen at 5,300-5,500 strikes, indicating support. Short covering was seen in call options at 5,300-5,400 strikes.

Interestingly, a bull-bear tussle is seen at the 5,500 level as open interest in put options at this level has increased by 535 per cent to 10.32 lakh shares, while the call options has increased by 91.4 per cent at 10.45 lakh shares.