The market saw a small correction through the Easter week and it hasn't pulled out yet. However, there appears to be strong support at the Nifty 9,120-9,150 range, which has held through several sessions. The 9,120 level is where the Nifty registered its all-time high in 2016 and it's not surprising that it has proved to be a support level once there was a breakout.
As of now, the record high is at 9,273 and the most recent support was at 9,120. Those remain useful benchmarks. If 9,120 remains unbroken, that would be a positive signal. A breakout to a new high above 9,273 would be confirmation that the market remains very bullish. On the downside, a drop below 9,120 would create a pattern of lower lows and indicate that the correction could go deeper.
Volumes remained reasonable through last week but advance-decline ratios weakened. FPIs did indulge in some selling. The dollar stayed range-bound at around the 64.45-64.65 level. Most trend-following systems would recommend staying long with a stop at around 9d050. Traders could consider going long on the dollar/rupee purely on technical grounds.
The focus is now on corporate results but global news
could still impact the market. There's good news
out of China, which says growth will accelerate.
On the other hand, the news
out of Turkey is bad and a key French election is on the agenda. Plus there's Brexit and some apprehensions that the US will drop more bib bombs.
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 on the cards in a full-blown intermediate downtrend. The global attitude still seems to be pro-emerging market. Attitudes towards the information technology sector could be defined by TCS' results after Infosys disappointed. Other corporates have only just started coming through the pipeline.
The Nifty Bank is trending at about 21,650 now. There are nine sessions left for the settlement. A long Nifty Bank (April 27) 20,800p (21), and long (April 27), 22,300c (20), costs roughly 41. Two big trending sessions could hit either side of this strangle. A short (April 20) 21,200p (10) and short (April 20) 22,000c (11) could reduce the cost of the position to 20-odd. But, this is not a fully satisfactory hedge, the short strikes are closer to money.
The VIX has risen but it is still under-pricing volatility at the current low levels. The April Nifty call chain has peak open interest (OI) at 9,500c, and high OI at every strike until 1,0000c. 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 9,140. The Put-call ratio is standing around 1.1 which is somewhat bullish. A long April 9,200c (50), short 9,300c (18) costs 32 and pays a maximum of 68. This is about 60 points from money. A long April 9,100p (44), short 9,000p (21) costs 23. It could pay 77 and it is 40 points off the money.
A wide strangle such as a long 9,000p (21), long 9,300c (18) could be offset by a short 8,900p (10), short 9,400c (5). This costs a net 24 and it has breakevens at 8,976, 9,324. This is not likely to be hit unless there's a rise in volatility however.
Trend following systems suggest staying long in the Nifty futures, with a trailing stop set at about 9,050 points. The long term trend remains bullish. Even in a correction, be wary of going short until and unless the index drops, combined with a negative advance-declines ratio, and strong volumes in losing stocks.