Bull run: 9,700-9,725 for the Nifty on the upside

The market climbed to another succession of new highs with the Sensex crossing 31,000 while the Nifty moved above 9,600. There was a surge on settlement day and that has lasted into the next few sessions. Despite cross-border tensions, worries about the trump tax plan, etc, the inflows have continued.

Overall, the May settlement saw reduced volumes but both domestic and foreign institutions were net buyers. Retail has also stayed positive. Midcap selling on Monday implies retail is now a little nervous or simply booking profits out of prudence. India-specific events still look favourable, given reasonable corporate results and a continued thrust on reforms. The GST is now being examined in its details.

The Nifty closed above 9,600 on Monday after hitting a new high at 9,637. The index has bounced from around a recent low at about 9350. It's now in new territory and target-setting will be inaccurate until some history builds up. Based on the breakout past 9,600, the Nifty could run up till 9,700-9,725. On the downside, it would have to stay above 9,350 ideally. Trends across all timeframes seem to be bullishly aligned but there may be profit-booking in the short-term.

The VIX has stayed low, which implies trader confidence. The put-call ratios (PCRs) are also above 1.1 indicating a bullish market. But, PCRs are not reliable indicators immediately after a settlement. The advance-decline ratio went into negative territory on Monday. The dollar remains appreciated to a zone of 64.50-65.00. Consider staying long dollar on purely technical grounds.

The index started moving North in late December from 7,900 levels. It has gained over 21 per cent. It's obviously bullish but the length of this current move (in terms of time) and the magnitude both indicate that the next intermediate correction could last a long time.

A dip till 8,800 could be on the cards if there's a full-blown intermediate downtrend. The global attitude is still strongly pro-emerging market. Apart from the information technology sector and Pharma, most sectors have seen hectic buying.

The Nifty Bank has seen a recent high of 23,464 but it has reacted, down to current levels of 23,175-23,200. A strangle of long June 29, 24,000c (70), long June 29, 22,500p (165) is asymmetric - the calls are a little further from money. But the put premium is much higher, indicating greater bearish expectations.

Either side of this strangle could be hit, given two or three big trending sessions. The cost can be offset slightly by selling June 8, 22,500p (49), short June 8, 24,000c (15). If either short position is struck, the corresponding long position will gain.

The June Nifty call chain has peak open interest (OI) at 9,700c, and high OI at every strike until 10,500c. The June put chain has very high OI at every strike down to 9,000p and quite substantial OI below till 8,000p, with peaks at 9,500p, 9,200p, 9,000p and 8,800p.

The Nifty is at about 9,605. The 9,600c (113) , 9,600p (111) are roughly equal, and a straddle would breakeven at about 9,825, 9,375. A long June 9,700c (65), short 9,800c (34) costs 31 and pays a maximum of 69. This is 95 points from money. A long June 9,500p (75), short June 9,400p (51) costs 24, pays a maximum of 76 and is 105 points off the money. These two spreads can be combined for a long-short set of strangles which are almost zero-delta. This set costs 55, pays 45, with breakevens at 9,445, 9,755. One side or the other is bound to be hit.

Trend following systems would suggest staying long in the Nifty futures. Stop-loss any such position at about 9,450.