Upside target for Nifty at 9,300

The Nifty hit another record high with many individual stocks also hitting new highs. Monday saw the index hitting 9,245 moving above the March 2017 high of 9,218. The new peak was backed by reasonable volumes and a very positive advance-declines ratio. On the next correction, there should be support at 9,120-9,150. That was the prior all-time high, established in 2016. On the upside, the next target would be 9,300.

If the trend doesn't breakdown, there's no reason why the uptrend would not cross above 9,300 for that matter. Every trend-following system would recommend staying long since all trends (short/ medium-term and long-term) seem strongly bullish.

However, corrections from these levels could be sharp and those might occur on any sort of adverse news on either global or domestic front. The index started moving north in late December from 7,900 levels. An intermediate correction could last 4 weeks or more, and a correction till 8,800 would be quite on the cards.

The major support has come from FIIs. The FIIs have bought rupee assets in massive quantities. with over Rs 30,000 crore of net equity buying in March. Domestic institutions have done substantial selling in March but the retail attitude is also highly positive. Hence, anything that leads to a change in FII assessment could trigger a sell off.

The FPI buying has been one reason why the dollar has fallen down to below Rs 65/ dollar levels. In fact, the dollar has been sold down versus most world currencies since the latest Fed hike in Mid-March.

The Nifty Bank is trending at about 21,500 now. A long Nifty Bank (April 27) 20,500p (51), and long (April 27), 22,500c (39), costs roughly 80. This is near zero-delta and three big trending sessions in the next month could send either end of this long strangle into profit. A short (April 13, 20,500p (11) and short (April 13) 22,000c (7) could reduce the cost of the position to 62-odd without increasing risks.

Global triggers include Brexit, President Trump's meeting with President Xi Jinping and other political developments in France and Germany where elections are due. On the domestic front, GST is a positive trigger.

The VIX is under-pricing volatility and intra-day volatility is also 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 9,235. The futures premium is quite low. A long April 9,300c (77), short 9,400c (39) costs 38 and pays a maximum of 62. This is about 65 points from money. A long April 9,200p (73), short 9,100p (35) also costs 38 and this is about 35 points from money. It could pay 62. A combination of these two spreads cost 76 and the breakevens are at 9,124, 9,376, with a maximum payoff of 24 only. 

A wide strangle combination like long 9,400c (39), long 9,100p (35), offset by short 9,500c (17), short 9,000p (28) costs 29. Breakevens are at 9,071, 9,429 and the payoff is a maximum 71. 

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 a market wide negative advance-declines ratio, and strong volumes in stocks which lose ground.