Nifty 9,250, 9,367 are two crucial levels

The market continued to rule high but bulls hit the pause button as they waited for newsflow. The second round of French elections are due on Sunday. Before that, the US Federal Reserve and the European Central Bank (ECB) have policy reviews in mid-week. There could also be more details about Donald Trump's tax proposals. In the midst of all the global news, India-specific events are not gaining that much traction apart from Indo-Pak tensions. Corporate results continue to run along expected lines. 

If the French elections go as scheduled, global equity markets will have another relief rally. That apart, neither the ECB nor the Fed are expected to take substantive action. But, both policy statements would be read for attitude. The Fed has hiked the policy rate band twice in succession. If the Fed now sounds dovish, the markets could rally. The ECB has held a negative policy rate and indulged in QE (quantitative easing) via bond-buying. If there are signs of tightening, the market could crack. 

The Nifty has climbed past 9,300 and tested resistance at 9,350. It hit a double top, coming down from 9,367 twice. That resistance is critical in the short-term. A breakout past 9,367 could push the Nifty till 9,500, while it would now have support at the 9,250-9,275 zone where prior highs were established. The next strong support below 9,250 would be at 9,100-9,125. 

Volumes were slightly low in the past few session due to "fence-sitting". Advance-decline ratios have also weakened on Tuesday. But, the put-call ratios are slightly bullish. The FPIs sold on Monday, ahead of central bank meetings. Domestic institutions remain buyers. The dollar is range-bound at 64.15-64.35. Traders could consider going long on the dollar/rupee purely on technical grounds.

The index started moving North in late December from 7,900 levels. It has now gained 18 per cent. Any intermediate correction could last 4 weeks or more, and a correction till 8,800 would be on the cards in a full-blown intermediate downtrend. The global attitude is still strongly pro-emerging market. However, IT sector and Pharma stocks are seeing selling. Energy stocks, especially PSUs have seen strong buying.  

The Nifty Bank is trending at about 22,350 now. A strangle of long May 25 23,000c (77), long May 25 21,700p (105) has asymmetric premiums although the strikes are equidistant from the money. This suggests some trading bias towards the downside. 

Either side of this strangle would be hit if there are just two big trending sessions. The cost can be offset by selling short May 11, 21,700p (32), short May 11, 23,000c (16). If either short position is struck, the corresponding long position gains in value. 

The VIX remains very low. That's bullish. The May Nifty call chain has peak open interest (OI) at 9,500c, and high OI at every strike until 10,000c. The May put chain has very high OI at every strike down to 8,000p with peaks at 9,200p, 9,000p, 8,800p and 8,500p.  

The Nifty is at about 9,315. A long May 9,400c (62), short 9,500c (27) costs 32 and pays a maximum of 68. This is 85 points from money. A long May 9,300p (80), short May 9,200p (50) costs 30 and it is just 15 points off the money. The close-to-money bearspread is underpriced. It pay a maximum of 70. A long May 9,200p (50), short 9,100p (32) costs only 18. This could pay 92 and it is 115 points off the money. 

Trend following systems suggest staying long in the Nifty futures, with a trailing stop at about 9,100 points. Be wary of going short until and unless the index drops, combined to negative advance-declines ratio, and strong volumes in losing stocks.