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Gap-down opening for Nifty seen

This article was posted on Nov 22, 2009 and is filed under Market News

The Nifty on Friday closed above the resistance level of 5,060 to keep the current bull run moving. The index, however, is expected to face resistance above the 5,100 level next week. The SGX Nifty futures was down by over 50 points over the official close of 5,077 in the over-the-counter (OTC) session on Friday. The US and European markets closed more or less in a Doji pattern, indicating indecisiveness among participants. If this weakness continues, then we may see a gap-down opening on Monday.

According to Subhash Gangadharan, an analyst at HDFC Securities, the trend shows an upward movement ahead. With technical indicators giving bullish signals and supporting the current uptrend, analyst expect the main indices to head towards their current 2009 highs in the intermediate term. As bull markets are known for making higher tops, there is the possibility of the main indices breaking their October highs and moving further. The next logical target for the Nifty is around 5,300, which is the intermediate top of 2008.

The options traders expect the index to scale new highs before expiry the of the November series on Thursday 26. They unwound short positions at 5,000-5,100 calls of the November series and built up long positions in 5,100-5,200 calls of the December series as they expect the current bull run to continue in the new series. Nevertheless, foreign institutional investors (FIIs) were net sellers on the cash and derivatives segments on Thursday and Friday, indicating profit booking at higher levels.

The Nifty November futures closed drawing a double-digit premium for the first time last week, indicating unwinding of short positions at lower levels. It shed 1.44 million shares in open interest (OI) on Friday and the Bloomberg data suggest that unwinding took place when the index was trading around the 4,960 level. The Nifty December futures closed at a 20-point premium to the spot and added 2.17 million shares in OI, indicating long build up.

The options traders were seen covering short positions at 5,000-5,100 calls and writing 5,000-5,100 puts as they expect the Nifty to trade above the 5,000 level next week and even close above the 5,100 level soon. The Nifty is expected to get strong support at 4,800-5,000 levels as 4,800-5,000 puts account for 51 per cent of the total OI in put options. Resistance is seen above the 5,100 level as the 5,100 call has the highest OI among call options.

source: Business-Standard

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