Profit-booking by foreign institutional investors (FIIs) in key index stocks such as Reliance Industries, HDFC, HDFC Bank, ICICI Bank and State Bank of India prevented the index from surging above 4,600 yesterday.
However, the index may hit the 4,600 mark early next week on short-covering in key index heavyweights in the closing hour of Friday and strong buying in automobile, realty and metal stocks all through the day. The index has strong resistance around 4,650 and so we may see profit-booking above this. Traders were seen covering short at the 4,500 call and creating fresh long at the 4,600 call on expectation of a fresh rally next week.
The 4,700 call witnessed short-covering in the morning when the index fell into the red. Traders started writing 4,700 call options in the afternoon session when the index showed strong resilience above 4,550. This means call writers expect the index to surge to the pre-Budget high of 4,695 next week.
Nifty August futures added open interest (OI) of 1.31 million shares, mostly through buy options, indicating continuation of the bull rally in August.
However, with only four days to go for the expiry of this month’s series, the July futures hold OI of 20.40 million shares, which is considerably lower than the OI of 30 million shares in the June series during the same time last month.
This means that rollover in the August series is expected to be weak as bears are likely to unwind shorts due to the strong undercurrent. A build-up in call options and unwinding in put options point to a further positive move.
In the August series, the 4,700 call added OI of 712,400 shares and the 4,500 put added OI of 239,450 shares, indicating that the index has strong support at 4,500 while it could easily move above 4,700.
