As expected, the Nifty opened on a weak note today, but received strong support at 4,950 and closed at 5,017 on short covering from other time frame traders. The trading pattern in the Nifty September futures suggested a strong consolidation around the initial balance (IB) range of 4,972-4,998 established by floor traders in the first hour of trading. Short covering was seen in the afternoon session when the September futures started convincingly above 5,000. The trade summary matrix showed change of hands and short covering from top traders above 5,000.
Smart recovery in the September futures from the day’s low of 4,954 to the high of 5,023 was accompanied by strong volumes (50 per cent), mostly from other time frame traders. This would lead to positive opening on Tuesday if the global markets staged a recovery. Strong global cues would lead to an opening around 5,019-5,039 and if the global markets remains significantly weak, the September futures can dip around 4,927. There is also a possibility of moving below the 4,900 mark. Nevertheless, a crossover above 5,077 is necessary to maintain the uptrend.
According to Moses Harding, head global markets group, IndusInd Bank, the Nifty is now in consolidation mode, unwinding its deep losses from 5,702 to 4,720. The correction phase from 4,720 is already under way, but positive cues from the US and euro zone are critical to sustain the recovery process and for conversion to a trend reversal to get the focus back at 5,700 for unwinding the 100 per cent losses witnessed since July 26. Because there was no confirmation, the set focus at immediate resistance is 5,100, followed by strong ones at 5,210 and 5,325. On the downside, strong supports are at 4,950 ahead of 4,850 and 4,720.
The September futures closed at a discount to spot and after adding 3.26 million shares in Friday’s open interest in intraday trade, it witnessed unwinding of 1.82 million shares in the after session settlement. This clearly hints at profit booking by bulls and creating fresh short by bears. Index heavyweights Reliance Industries and Infosys Technologies showed some recovery in the end on short covering. Reliance Industries, which saw strong consolidation in the 785-798 range, is expected to move up around 801.
The options traders built up fresh short in 5,100 strike call options and initiated short-covering in the same strike put.
