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The US markets have reacted to Chinese inflation data and are trading in the negative zone: the Dow down by 3 points, the S&P 500 and the Nasdaq both are trading flat.

Our market witnessed one of the most frantic short-covering rallies in recent memory. The Nifty jumped from 5112 to 5152 only to settle down at 5133.40. The Nifty PCR has moved up from 1.39 to 1.50-a big jump in a day’s time, by any reckoning, to be sure. This suggests that we are headed for further upswing and the much anticipated test for the range between 5150 and 5190 happening any time.

Nifty option statistics continue to suggest upward momentum for the index. The March Nifty put options of strike prices of 5000, 5100 and 5200 have added large quantity of Open Interest. The most active Nifty call option is now the one at 5300 strike. Short-sellers have covered 5100 and 5200 call options in a big way. This, by itself, raises a possibility of a probable test of the resistance zone.

Quite a few market participants and observers seem to think that this rally is likely to fizzle out soon enough. However, this seems to be a misplaced concern since we must take cognizance of the fact that despite no fresh positive triggers the market refused to fall below Nifty 5100 mark. Next, why should the shorts come in to cover their position when the major resistance zone is not yet cleared. Additional put selling and covering the sold call options close to at the money suggest bulls seem to anticipate something really positively significant or else they would not have so much of confidence to sell puts in a big way.

On the way up, the level of 5157 and 5181 would give strong resistance; support exists between 5105 and 5089.

Rajat K. Bose