On the upside, the mark to beat would be 10,178, which was the all-time high generated on September 19. The bounce from support at
9,675-9,700 is a bullish signal since the support has held on the last two downtrends. The move into the zone of 9,975-10,000 is encouraging.
Trend following systems suggest staying long, with a trailing stop-loss at 9,925. The background signals are mildly bullish. The VIX has dropped back into calm territory. The Advance Decline ratio is positive for the past five sessions. Volumes are average.
By definition, the long-term trend remains positive. The 200-Day Moving Average (200-DMA) is around 9,250, 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 10,178 in mid-September before it reversed. It has bounced twice from 9,675. A break above 10,200 to a new high would indicate strong momentum, while the market should stay above 9,675 on the next short-term downtrend.
The Nifty Bank had reacted down from an all time high at 25,200 in early August to 23,822 on August 10, before pulling above 25,000 again on the latest move. But, the financial index failed to hit a new high on the September up-move. It tested support at 23700-23800 and it has climbed back above 24,250.
Three big trending sessions could push "Bank" till 25,000, or till 23,500. A strangle of long October 26, 25,000c (33), long October 26, long 23,500p (59) costs around 92. This can be offset with a strangle of short October 12, 24,500c (12), short October 12, 23,500p (20). This is a calendar spread where the short positions will reduce total outlay to around 60. The long premium should rise if short strikes are hit. Note that this is a zero-delta position but the puts are more expensive, despite being at the same distance from money.
The Nifty's Put-Call Ratio (PCR) is bullish with both the October PCR (1.13) and the three-month PCR (1.2) comfortably above 1. The October Nifty call chain has peak open interest (OI) at 10,000c, and high OI until 11,000c. The October put chain has very high OI between 9,500p and 10,000p, with high OI down till 9,000p.
The Nifty closed at 9,989 on Monday. The short-term trend seems bullish. A bullspread of long 10,100c (45), short 10,200c (20) costs 25 and pays a maximum 75. This is about 110 points from money. A bearspread of long 9,900p (51), short 9,800p (32) costs 19, pays a maximum of 81 and is 90 points from money.
These spreads are nearly zero-delta and could be combined. The resulting position costs 44, with breakevens roughly at 10,144, 9,856. One side of this strangle set is likely to be hit in the October settlement and it could be taken.
The next set of triggers will be corporate results. Expectations are low so the market sentiment would not be hit very hard by poor numbers. But, another factor to be borne in mind is that retail investors tend to go away around the Diwali period so that some buying power may be temporarily removed. That could result in a slump.