Breakout above 9,150 could push Nifty to 9,300

The Nifty jumped to an all-time high in response to the assembly election results. It opened at 9,122, which was just a sliver above the previous record of 9,120. Profit booking pulled the index back a trifle but it closed near 9,100. The primary resistance would be at 9,120-9,150, while the primary support on further profit-booking would be about 8,970-9,100 where the previous highs were held. 

If the uptrend persists, it should set up short-term targets in the 9,300 zone. Obviously every trend following system recommends staying long. In technical terms, all trends (short/ medium-term and long-term) are strongly bullish despite the probability of a further correction on profit-booking. 

Foreign portfolio investors (FPIs) have been net positive since the Union Budget and the pace of buying may improve. Domestic institutions did some selling in March. Retail attitude is highly positive. The FPI buying has pushed the dollar down. 

The Nifty Bank has also hit all-time highs and the index is trending at about 21,100 now. A long Nifty Bank (March 30) 20,600p (93), and long (March 30), 21,600c (85), costs roughly 178. This is almost zero-delta. Either end of this long strangle could be hit, given two trending sessions. The March 23, short 21,600c (42) and short March 16,  20,600p (45) can be sold. This would cut the total cost to about 91 and the respective long option will rise if either short option is hit. 

News-based volatility could continue, given the US Fed policy review. Global markets are braced for a Fed hike. But, a hike in the dollar policy rates could still lead to a sell-off in emerging market assets and a hardening of the dollar. 

The Nifty’s VIX has dipped sharply and it has fallen to the point where it is under-pricing likely volatility. Given the domestic trends, a strong rally interspersed by profit-booking seems likely. 

At the same time, a rate hike by the US Fed could lead to a global sell off. Forex traders should be eyeing long dollar-rupee positions. 

The March Nifty call chain now has peak open interest (OI) at 9,200c, with another peak at 9,500c, high OI at every strike until 10,000c. The March put chain has very high OI at every strike down to 8,000p and good OI down until 7,500p. The Put-call ratio for March has dipped to 0.9 and this is a sign of an overbought market. 

The Nifty is at 9,087. Half of March settlement is left. The current signals are bullish and there’s enough news-flow, including overseas news-flow, to create daily volatility. A long March 9,100p (81), compared to long March 9,100c (84) gives a sense of bullishness. The call is on-the-money with the put marginally in-the-money. But, the call is more expensive. 

A strangle with long 9,200c (42), long 9,000p (45) is almost zero-delta. This has breakevens at around 9,287, 8,913. There are very good chances that one side of this position will be struck before March 30.

The market seems to be seriously under estimating volatility with the VIX near 10. A bullspread of long March 9,200c (42), short 9,300c (19) costs 23 and pays a maximum 77. This is about 115 points from money. A bearspread of long March 9,000p (45), short 8,900p (25) costs 20 and pays a maximum 80. This is 85-90 points from money. Either position looks reasonable. 

Any trend following technical 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, avoid taking short positions until and unless the index drops, along with negative advance-declines ratio, and strong volumes in the stocks that are losing ground.