The Nifty opened on a positive note and stayed firm above the crucial breakout level throughout the day on short-covering, before closing at 5,540. The index is expected to face strong resistance above 5,560 before approaching its ultimate technical target of 5,650.
The Nifty August futures closed at a discount to spot and shed over two million shares in open interest (OI), indicating some profit booking. The September futures added 36.5 per cent OI (1.78 million shares) at a premium, which hints at an extended rally next month.
Technically, the Nifty is expected to rise till the upper end of the range, which is at 5,650. The Nifty has now moved past its resistance level, and the put writers have added 2.87 million shares in OI in the 5,500-strike put (mostly through sell-side trades), which was an expected move at 5,500. Nevertheless, the OI build-up at 5,400 and 5,500-strike puts suggest very little downside for the Nifty.
The point-of-control (PoC), where the market has spent the most time trading, witnessed triple distribution of time-price opportunities (TPOs) at 5,410-5,525 price level with 50 per cent volume. This gives an upper hand to the bulls to control the market above 5,500. However, selling pressure was witnessed above 5,525 with 21.3 per cent of the traded volume changing hands through sell-side trades. However, top traders were seen buying the Nifty at higher levels, according to Bloomberg data.
A projection based on intraday trading volume and PoC indicates the Nifty may face strong resistance if it moves above 5,550. The OI positions of 10 million shares in the 5,600-strike call options indicates strong resistance. The OI build-up in the 5,600-strike put hints at a possible crossover above 5,600 in the near future.
Among stock futures, ICICI Bank and ITC moved up on short-covering at higher levels. The August futures of ICICI Bank is poised to move above Rs 1,030 from its closing level of Rs 1,009.75, while ITC is expected to hit Rs 170 from the close of Rs 164.55.
