The Nifty closed near the upper resistance level of 4,700 on Friday, while the Nifty September futures started trading at a premium. The 4,600 and 4,700 calls together shed 1.5 million shares in open interest (OI), while the 4,700 put witnessed an increase of 1.05 million shares in OI. These developments appear to be conducive for a fresh rally. We may see the Nifty piercing the most crucial resistance level of 4,730 next week.
According to technical analyst Gautam Shah of JM Financial, the recent decline is a pullback within an uptrend and, hence, we may see a positive breakout as soon as possible. The daily relative strength index (RSI) is at the trendline support level, but there are also a couple of bearish patterns on the hourly chart which may get triggered only at a close below 4,580.
However, a significant build up in OI at the 4,500 and 4,600 strike puts suggests that the index may not dip below 4,580.
The 4,800 and 4,900 strike calls witnessed a change of hands and short-covering in anticipation of a fresh rally if the Nifty closes above the 4,730 level next week.
The 4,800 call added 38,200 shares in OI despite a trading volume of 7.50 million shares indicating that operators not only covered their short position but also created fresh long positions. The 4,900 call has shed 462,350 shares in OI despite a trading volume of 5.10 million shares as traders expect a sharp pullback next week.
On Friday, Reliance recovered from the day’s low of Rs 1,940 to close at Rs 1,991, and is likely to see a fresh pullback next week. Its September futures witnessed intraday short covering and fresh long build-up as the stock moved above Rs 1,950.
The unwinding of OI seen in the 1,950-2,070 calls and profit booking at the 2,040-2,070 puts may result in the stock moving above the Rs 2,070 level soon. Resistance is seen around Rs 2,100 as traders wrote call options for this strike.
