Mumbai: A leading sentiment indicator, which is at a seven- year high, is signalling that the stock market may be overbought. The Put-Call ratio — the number of puts vis-a-vis the number of calls — of the Nifty is near its highest since September 2010 as the stock market's uninterrupted record breaking run has boosted traders' confidence, who are betting that the bullish momentum will continue.

Put-call ratio is a popular technical indicator and when it is above 1, it means that puts are outnumbering the calls and is a sign of bearishness.

The put-call ratio is now at 1.74 and on Thursday it was 1.75, said Chandan Taparia, derivative analyst at Motilal Oswal Financial Services.

"A higher PCR indicates that put writers are controlling the market and not expecting much of a decline. The trend is intact but now the trend has stretched so much, risk reward may not be favourable or if something goes wrong we might see some selling," said Taparia.

The Nifty index has gained 1.4 per cent so far in 2018 to hit new record highs and has come close to scaling the next milestone of 10,700 points. On Friday, the Nifty closed 30 points, or 0.28 per cent, higher at 10,681.25 points. In 2017, the index gained about 28 per cent.

Analysts said the PCR has risen to multi-year high levels due to writing in 10,500, 10,600 and even 10,700 put options.

"Usually PCR is in the range of 0.6-0.7 on the lower side and 1.4-1.5 on the higher side. Last year also, PCR went up to 1.6 and there was no sudden correction. But is does suggest over optimism and if any negative comes, there can be a decent correction," said Jay Purohit, technical and derivative analyst at Centrum Broking.

Sneha Seth, derivative analyst at Angel Broking, said the market is likely to find strong support between 10,500 and 10,600. "The market has sustained above 10,600 in the last one week, which is a good sign. Unless 10,600 is breached, one should avoid bearish bets," said Seth.