Short-term signals are bullish

Global sentiment continues to look reasonably strong and investors are now focussed on earnings season. Information technology (IT) bellwether, Infosys kicks off the earning season with its results due on Friday. The expectations for Q4, 2015-16 are not high and that could paradoxically, mean gains. The indices picked up due to late buying on Monday.

The minimal rate cut at the Reserve Bank of India (RBI) policy review last week left some bulls disappointed but it is seen as a positive step. This week features key meetings such as a meeting between various Opec nations and Russia, which could influence crude prices. There is also a meeting between the IMF and the World Bank in Washington. This coincides with a long holiday in India with markets closed from Thursday.

Read more from our special coverage on "DERIVATIVES STRATEGIES"

• Uptrend likely to last till RBI policy meet
• Big resistance at current Nifty zone of 7,500-7,650
• Nifty faces big resistance between 7,450 and 7,600
• Enormous resistances at Nifty 7,250-7,300 levels
• Further bearishness seems much more likely

Some short-term positions may be closed out on Wednesday because Monday April 18 will be expected to be a big swing session. As of now, the sentiment is mildly positive. A reduction in GDP projections by the IMF could mean that the central banks will let loose another burst of monetary easing.

The Nifty fell last week from a recent high of 7,764. However, it rallied from a low of 7,516 on Monday (April 11) and 7,764 would be the level to beat in the current rally. The 200-Day Moving Average (200-DMA) is at around 7,880 and a move past the 200-DMA would indicate a likely change in the long-term trend, from bearish to bullish. Short-term moving averages like the 7-DMA, 10-DMA, 20-DMA are all signalling "buy".

Breadth has been good and volumes reasonable. Domestic institutions have sold but the FIIs were big buyers through March. The rupee continues to look strong against dollar. However, there was FII selling in the first week of April and that could lead to a rupee correction.

Infy usually sees a big move on results. That can be expected to happen on Monday. If it does occur, it could move the Nifty a distance because the stock has a large free float and hence, high weight. It could also set up a trend in the IT industry.

The Nifty Bank ran stronger than the overall market until the RBI policy since it is more rate-sensitive. The Nifty Bank corrected on the RBI policy however, it is now testing resistance at above 15,800 after dipping to test support at 15,450. A strangle of long 15,500p (128) and long 16,100c (175) is roughly zero-delta, with the index at 15,820. This costs 304 and it has breakevens at around 15,190, 16,410. Either end of the strangle could be struck in one big session.

Open interest (OI) in the Nifty call option chain for April has a big peak at 8,000c and then tapers off but there is good OI until 8,200c. The April put option chain has big peaks at 7,500p and 7,000p and a lot of OI down to 6,800p. The Nifty's put-call ratios look bearish at 0.85.

The Nifty closed at 7,671 on Monday. A bullspread of long April 7,800c (48) short 7,900c (23) costs 25 and pays a maximum 75 and it's about 130 points from money. The long 7,700c (90), short 7,800c (48) spread though that is about 130 points from money. A bearspread of long 7,600p (52), short 7,500p (30) costs 22, with a maximum payout of 78. This is about 72 points from money. Combining those two spreads would give a long-short strangle with maximum return of about 52, for a cost of 47. It is not zero-delta but the two-way nature of the spread may be useful given the guaranteed volatility of earnings season.