Short-term Nifty targets in the 9,300 zone

The Nifty continued to rule high with one minor correction. However, it has not managed to beat the record high of 9,218, established on March 17, in the past few sessions. The correction found support at the zone of 9,000-9,050. This is the upper end of the 8,970-9,025 gap established on March 13. Primary resistance would now be at 9,200-9,250 zone. In terms of closing values, the Nfty has been unable to move beyond 9,160.

The short-term targets would be in the 9,300 zone assuming the trend doesn't breakdown but obviously the 9,218 mark must be beaten first. Every trend-following system would recommend staying long since all trends (short/ medium-term and long-term) seem strongly bullish.

However, there could be sharp corrections from these levels and those might occur on any sort of adverse news on either global or domestic front. The foreign portfolio investors (FPIs) have bought rupee assets in massive quantities through this settlement with over ~24,000 crore of net equity buying in March. Hence, anything that leads to a change in their assessment could trigger a sell off. Domestic institutions have done substantial selling in March but retail attitude is highly positive. The FPI buying has pushed the dollar down to below ~65/dollar levels.

The Nifty Bank is trending at about 21,400 now and it hit a new all-time high on Tuesday. If past relationships hold, the Nifty itself will also move to a new high soon since the financial index generally front-runs the Nifty slightly.

A long Nifty Bank (April 27) 20,800p (114), and long (April 27), 22,000c (118), costs roughly 232. This is near zero-delta and three big trending sessions in the next month would send either end of this long strangle into profit. A short (April 6) 20,800p (19) and short (April 6) 22,000c (22) could reduce the cost of the position by 41odd without increasing risks.

News triggers on the global front will include Brexit, President Trump's attempts to pass new legislation and also political developments in France and Germany where elections are due this year. On the domestic front, GST is a possible trigger and other things could erupt, since Parliament is in session.

The VIX is under-pricing volatility and intra-day movements (the high-low spread) are unusually low. Forex traders should also be eyeing long dollar-rupee positions now because the dollar will strengthen if there are a couple of sessions of FII selling.

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

The Nifty is at about 9,145. A long April 9,300c (59), short 9,400c (31) costs 28 and pays a maximum of 72. This is about 155 points from money. A long April 9,000p (55), short 8,900p (35) costs 20 and this is about 145 points from money. It could pay 80. A combination of these two spreads cost 48 and the breakevens are at 8,952, 9,348, with maximum payoff of 52 only.

It may be worth selling the short 9,100p (85) and the short 9,200c (101) for two sessions. If the settlement goes through without much change, these shorts could be squared for some gain. Obviously there is some risk in short-sells this close to money.

Any trend following system would suggest staying long in the Nifty futures, with a trailing stop set at about 120 points below the entry point. Given the strong uptrend, be wary of taking a bearish view until and unless the index drops, combined to marketwide negative advance-declines ratio, and strong volumes in the stocks which lose ground.