Mumbai: Substantial short covering of index futures by FPIs witnessed the market breaking above the 10,400 hurdle, but the bigger obstacle kicks in at 10,551, the 61.8 per cent retracement of the fall from 12,430.5 on January 20 to the multi-year low of 7,511.1 on March 24 this year.

After hitting a high of 35,467.23, the BSE Sensex settled 498.65 points, or 1.43 per cent, higher at 35,414.45 on Monday. Similarly, the Nifty surged 127.95 points, or 1.24 per cent, to close at 10,430.05. Axis Bank was the top gainer in the Sensex pack, soaring 6.58 per cent, followed by Bajaj Finserv, HDFC, Bajaj Finance, ITC, IndusInd Bank, SBI, ICICI Bank and Reliance Industries.

FPIs covered 15,943 shorts on Nifty and Bank Nifty on July 1, helping the 50 -stock index to jump 1.2 per cent to 10,430. This covering was also vital in cutting the Nifty futures discount to 33.5 from 62 points in the previous session.

However, besides selling shares worth a provisional 1,696 crore on July 1, FPIs have still retained cumulative index net shorts at 14,408 contracts. Analysts see this as one of the reasons for Nifty remaining in the 10,000-10,550 range, for the short term.

“The 61.8 per cent retracement, as reflected by the options data, is a wall which has to be conclusively surpassed if the index is to break out of the 500-point range it’s largely been within of late,” said Rohit Srivastava, founder, IndiaCharts.

The 10,551-mark is an area which has witnessed significant supply and caused the Nifty to retreat on the past couple of occasions.

A break above the 10,551 zone would open the door to 10,650 levels, options expiry for July 9 shows. The maximum put open interest is at 10,000 while the call OI is at 10,600. Sellers have sold more calls at the 10,600 level in the knowledge of 10,551 being a stiff resistance.