Countdown to 10,000 on Nifty has started! Time to book profits or add fresh positions?

The countdown has already started before the Nifty50 hits Mount 10K which every trader on D-Street is eagerly awaiting. A psychological level which would make Nifty from a four digit number to a five digit number. But, there is another reason why Mount 10K is important.

The all important 10,000 level also hold maximum call open interest of 49 lakh contracts which is likely to act stiff resistance for markets, followed by 9900 which has accumulated 47 lakh contracts in open interest and 9,800 which has 28 lakh contracts in open interest.

A breach of 10,000 on the Nifty could open room for further upside as investors would rush to cover their short positions. Investors will be better off booking profits at current levels and then add fresh positions when there is a big correction.

Global liquidity is pushing stocks higher not just in India but across the world. The US market closed at a high on Friday and the MSCI world index hit a record high for the fourth time in less than a month on Monday as recent dovish comments from Janet Yellen put off a rate hike at the July meeting.

Back home, the Nifty50 which started with a small gap on the upside hit a record high of 9,922.95 which is just 78 points short of mount 10K. The party of bulls on D-Street keeps getting stronger but analysts’ on D-Street are now taking a cautious stance.

The magical figure of 10,000 might well come this week but the risk-to-reward ratio has now become unfavourable for investors. But, as some wise man say, don’t question the momentum and don’t trade against the trend, because the trend is your friend.

“The Nifty certainly looks like it might be headed to 10,000 plus and well above Rs 10,000 in the near term the way the momentum indicators are but I think it is getting to that point where - even people who respect momentum in the market would be scratching their heads and saying is it too much of a good thing,” Udayan Mukherjee, Consulting Editor at CNBC-TV18 said in an interview.

“I do not know when this momentum stops maybe we get carried another 4-5 percent on the way up because of the fresh breakout we have seen above 9,500-9,700 but at this point you should start to get more and more cautious and less exuberant because there are signs of a mild bit of madness creeping in,” he said.

The Nifty50 has already rallied 20 percent so far in the year 2017 and second half of the year also promises good returns but might not replicate a 20 percent rally. But, certainly, the index is on track to hit 10K and could well stay there by December 2017.

A gush of global as well as domestic liquidity changed the equation for Indian markets and if there is a correction that would be led by global markets.

Foreign investors have pumped in nearly Rs 11,000 crore in the capital markets in the first two weeks of this month. With the latest inflow, total investment in capital markets (equity and debt) has reached Rs 1.6 lakh crore (over USD 24 billion) this year.

Though present positive fundamentals continue to spur a bull run in the markets, a sense of complacency has set in the system, as seen from the continuing low levels of India VIX, suggest experts.

“Taking into account an upsurge in market fundamentals, a target of 10,000 had been envisaged for this leg of the bull trend, a level at which the market completes a large upcycle,” Gautam Shah, CMT Associate Director, Chief Technical Analyst- JM Financial Services Ltd told Moneycontrol.

“As the Nifty has risen from the 7900 mark to 9900 levels without any reasonable correction, it warrants a case from the 10000 mark (+/- 100 points),” he said.

Shah further added that if the index performs along expected lines, one can expect a retracement of 3-5 percent with support at 9700 and 9500 levels.