Stay long Nifty with stop-loss of 10,250

The market continued to hit new highs on the back of the massive recapitalisation plan for PSU banks. Bullish global trends also helped to keep sentiments high. The Nifty hit a high of 10,384 on Monday. More than FPI (foreign portfolio investor) buying, it was retail and domestic institutional buying that pushed the market to successive new highs.

Obviously, the new highs confirm that the long trend remains bullish and momentum has accelerated. However, this is a new zone so, target setting is near-impossible. Depending on levels of optimism, any target between 10,400 and 10,650 could be hit. The movement was broader on Monday.

The bounce started from support at 9,675-9,700, which has held on the last two downtrends. Trend following systems suggest staying long, with a trailing stop-loss now at 10,250. The Advance Decline ratio is very positive. The VIX is in calm territory but it spiked which could indicate imminent profit-booking.

The 200 Day Moving Average is around 9,450, way below the current mark. Taking a longer-term view, the Nifty moved North in late December 2016 from 7,900 levels to a high of 10,384 in lateOctober. It has bounced twice from 9,675. The successive new highs indicate strong momentum, while the market should now stay above 10,150 on the next short-term downtrend.

The Nifty Bank had been less bullish than the overall market until the bank recap plan was unveiled. It's picking up now. It's worth noting that PSU banks have very low weights in the Nifty Bank and as mentioned above, highweighted private banks saw selling. However, the sharp rise in PSU bank pricelines will have changed the weights somewhat in their favour.

Over the next few sessions, there could be some profitbooking in PSU banks and some short-covering in private banks. The Nifty Bank index is still trending below its all-time high of 25,200. We'd expect it to breakout beyond that. The heavyweight private banks are now looking bullish so that would lend further upwards momentum to counter possible profit booking in PSU banks.

A strangle of long November 30, 26,000c (79), long November 30, 24,000p (102) costs around 181. This is near zero-delta with the index at 24,988. The trader could sell short November 11, 26,000c (18), short November 11, 24,000p (29) costs 47. So, the net strangle position with these long-short calendar spread costs about 134. It could have a big payoff if the financial index stays volatile in November.

Other corporate results have been quite good because expectations were low and there is a low base effect versus July-September 2016 as well. Those will probably continue to be upside triggers since, given upbeat sentiment, positive surprises will be greeted with buying.

The Nifty's put-call ratio (PCR) is not very useful this close to settlement. The November Nifty call chain has peak open interest (OI) at 10,500c, and high OI until 11,500c. The November put chain has very high OI between 9,500p and 10,300p with peaks at 10,000 and 10,200.

The Nifty closed at 10,363 on Tuesday. A bullspread of long November 10,500c (75), short 10,600c (41) costs 34 and pays a maximum 66. This is about 140 points from money. A bearspread of long 10,200p (68), short 10,100p (46) costs 22, pays a maximum of 78 and is about 160 points from money.

These spreads are nearly zero-delta. Combined, the resulting position costs 56, with breakevens roughly at 10,145, 10,556. One or the other position is almost sure to be hit in the new settlement. A gutsy trader could sell further from money, or buy one 10,500c, sell two 10,600c. This would mean a net inflow of 6, and a maximum return at 10,600.