Nifty can swing 200-250 points in either direction

Main driver remains expectations of big rate cut in credit policy review but stocks like Hindustan Unilever & ITC have also seen heavy buying

The market continued to gain through settlement, but the upside momentum slowed down. Net institutional support has improved with FII buying in the new settlement. The Nifty has risen past 5,900, and it's encountering resistance at 5,925. The main driver remains expectations of a big rate cut in the May 3 credit policy review, but stocks like Hind Unilever and ITC have also seen heavy buying.

The short-term trend remains positive. If it crosses 5,925, it will face resistance at roughly 25-point intervals.  The intermediate trend is also positive, since we have seen a succession of higher highs since the index bounced on April 10 from a low of 5,477.  

The long-term trend is still questionable. The pullback above the 200-day moving averages (DMA) suggests it is positive but needs to beat the 2013 high of 6,110 to confirm a continuing bull market. On the downside, the Nifty must stay above the 200 DMA on the next short-term downtrend. The nearest support is 5,860 and below that, there's support at roughly 25-point intervals.

Expectations weren't high, so results have, by and large, offered positive surprises. The domestic danger signals would involve political instability with Parliament back in session. Moving average systems involving the 10-DMA and 20-DMA are now showing a buy signal with the 10-DMA having climbed above the 20-DMA.

The CNXIT continues to be a drag on the market's uptrend. The Bank Nifty, which is high-beta, could be the major driver with a big jump, if there's a large rate cut. IndusInd, YES Bank and Axis Bank are likely to be outperformers on the upside. There has also been some speculative buying in auto shares.

The Bank Nifty has support at 12,350-12,400, and it's likely to push up close to 12,800 before the credit policy. Any long May futures positions in the Bank Nifty should have stop losses in the 12,250-12,300 range. The put-call ratios are fairly bullish now, ranging at about 1.2.

May is likely to be a trending month with a good chance of a five per cent swing, and, as of now, it has an upside bias. So, options traders could look for positions at some distance from money.  The Nifty is at 5,904.

Trader expectations suggest the market is braced for a 200-250 point swing in either direction in the next five to 10 sessions. There's excellent open interest till around the 6,200c and on the downside till 5,500p.

Risk-reward ratios are acceptable close to money and attractive at one step away from the money. A May bull spread of long 6,000c (54) and short 6,100c (26) costs 28 and pays a maximum 72. The on-the-money long 5,900c (99) and short 6,000c costs 45 and pays a maximum 55.

A May bear spread of long 5,800p (48) and short 5,700p (27) costs 21 and pays a maximum 79. An on-the-money long 5,900p (82) and short 5,800p costs 35 and pays 65. Traders can, therefore, take positions on the money or move further away as they wish. The premiums show a bullish bias.

The nearest set of strangles with a 50-50 payoff to risk would be a combination of the long 6,000c, long 5,800p offset with a short 6,100c and a short 5,700p. This combination would cost just about 49.5 and pay a maximum of 50.5 with breakevens at 6,050 and 5,750.