Nifty likely to test 5180-5200 level soon

After moving past the crucial resistance level of 5180, the Nifty has remained in a narrow range between 5240 and 5310 in the past three days. Once the lower end of this range is breached, the Nifty is likely to find strong support in the 5180-5200 zone.

The medium-term direction of the index is likely to be dictated by movement in Reliance Industries and Bank Nifty, both of which are showing signs of a large move in either direction. Strong build-up was witnessed on Wednesday in Call options of strike 5300 which added 16544 lots to Open Interest. Put options of strike 5100 also had a build-up of 12891 lots. Put Call ratio (OI) across all expiries rose marginally to 1.26.

Option data suggests that the market may consolidate further in the near term. Long build-up was visible in oil & gas stocks like Reliance Industries, Cairn India and GAIL and also in selected capital goods stocks like Siemens and ABB. Short build was seen in large-cap IT stocks.

Reliance Industries is attempting to break out from a symmetrical triangle pattern from the level of 1120. It is likely that it outperforms the market in the short term, as the Nifty consolidates between 5180 and 5300.

We recommend initiating long straddle strategy in Reliance Industries at strike 1110. Call option of the strike is trading at Rs 30 and Put option at Rs 34. The strategy will be profitable when the stock closes either higher than 1174 or lower than 1046 on expiry.

Prabir Sarkar, AVP-Technical Research, Microsec Capital