Nifty has resistance at 5300 levels

F&O OUTLOOK

B G Shirsat / Mumbai May 3, 2008

The Nifty moved between the support and resistance levels and closed with gains of 63 points (1.81 per cent) due to fresh buying in automobile, banks, realty and technology stocks.

The index made an intra-day high of 5298.85, and according to Ashish Shroff, technical analyst at Ambit Capital, it has a strong resistance at 5300-5350.

The activity in Nifty options suggests that Nifty has a strong resistance around 5,300, 5400 and 5,500 levels, and healthy support near the 5000 levels.

Heavy call writing took place at the 5300 (OI up 32.3 per cent), 5400 (OI up 62.34 per cent) and 5500 (up 31.7 per cent) strike prices, accompanied with call buying at 5000 (OI up 18.9 per cent) and put writing at 5000 (OI up 18 per cent).

As is known, the option traders act contrary to the market and hence writing of call options indicates resistance and put writing demonstrates support.

According to technical analyst Ashish Shroff, the Nifty gained over two per cent on a week-on-week basis and closed above the 200 DMA (daily moving average).

Markets have moved gradually up, but on low volumes. Even after the Nifty gave a breakout above 5000 and 200 DMA, there has been no follow-up buying, which calls for caution in the near term.

Momentum oscillators reveal negative divergence, which suggests that the rally is overdone for the short term. All indicators are in a sell mode and hence any intra-day or near-term upmove will not last for long.

Analysts expect profit booking to take place next week as the Nifty faces resistance from 5240 to 5280. The short-term trend is down, with a target of 4940. Reversal can only happen above the 5350 levels.