Share Bazaar News India

Speaking to CNBC-TV18, Sushil Kedia, Head- Institutional Equities at K&A Securities said, “It is better to wait for a pullback and then decide whether a long trade makes sense. To go and buy into this strength in the morning is perhaps not looking as attractive.”

Q: What’s the Nifty chart looking like and what’s the best way to trade it?

A: Going forward if I have to take a call on whether to buy or sell right away, I think the opening upmove is perhaps done with. If a further breakout from the highs so far seen comes up by time studies there are potential reversal windows around 11 am today. So I think the opportunity to open a long trade was perhaps on Thursday, which was again difficult because of a long weekend or given that the lack of conviction or clarity on various markets existed.

I think it is better to wait for a pullback and then decide whether a long trade makes sense. To go and buy into this strength in the morning is perhaps not looking as attractive.

Q: So would you say you would open up a short beyond lets say the 50:50 mark or you would just wait and watch for what the market does by the end of trade today?

A: Wait and watch is a better choice for now. Given the fact that there are so many cues which are pointing to strength in prices. Individual charts, components that are making up the Nifty, are not really showing many pockets of weakness.

So if I am trying to draw conclusions from many types of evidences there is not enough to call for a short trade here. In terms of going for a long trade here the tolerance or pain might have to be 80-points or 100-points for the day.

Going forward further maybe Nifty can travel to as much as 5,240 on the upper side in the current upmove and to play for 5,240 one may have to be tolerant, the downside tolerance may need to be as low as 4,870 to begin with.

So I think only pullbacks are where you will need to evaluate whether a long trade makes sense or you need to give it a pass.

Q: A lot of people have been commenting on the strength of Reliance these past few sessions technically how is it looking to you?

A: If today or by tomorrow morning Rs 2,710 is taken out then it perhaps makes sense to participate in this strength or else a pullback to Rs 2,450 can’t be ruled out which might be equivalent on Nifty levels of almost 4,780. So let’s wait for a trigger on technicals.

Q: What does trade of the last two weeks suggested to you? Have you seen any kind of a trend reversal, do you think we have broken out of that trading band that we have been in or premature to say that?

A: The kind of noise or the kind of stretches that we have seen has not really given that sort of a conviction within the patterns that one sees on an intra-day timeframe added over a 15-20 day perspective that perhaps the final bottom has been made, it perhaps has been but it still leaves a much larger than a 50% probability that a retest of the low seen so far is pending. Before these lows are retested the market can go as much as 5,240 but perhaps no more from the patterns that we see now.

Q: What’s the best trade in this market then if we don’t have enough conviction on the Nifty do you have a high conviction trade that can be taken at this point?

A: Tata Steel, which had a potential short-term trading reversal today but it has broken past the stop loss level that one would have chosen before the market opened for a potential short, that becomes an extended upmove; Tata Steel can be bought in here, Steel Authority of India Ltd (SAIL) can be bought in here. Maybe Satyam is still good for getting into the strength here. You have a Sterlite and Hindalco also joining into reversal breakout strengths. There are a good number of names from the real estate sector also which are extremely oversold and perhaps the cash reserve ratio (CRR) hike is not really making an effect on them. So based on what ones lost tolerance level is and what has been prevailing last 10-12 days volatility on these one has to choose the stop losses and look for buy trade there.

Q: Is that the stronger stock from technology Satyam?

A: The strength has been fairly well in the last 7-8 days on Infosys, Tata Consultancy Services (TCS) as well as Satyam. But Satyam looks more attractive than the other two names for one reason that typically over the last four-four and a half years of this bull market Satyam has tended to lag on a cyclical pattern evolution vis-à-vis Infosys or a TCS and so perhaps Satyam is still behaving in terms of chart patterns to patterns in Infosys or Satyam that you saw nearly a year ago.

As in the long-term uptrend in Satyam is not really dented as much as Infosys and TCS are perhaps just rallies within the broad meandering corrections they have seen for the last one-year. In that sense Satyam appears mentally more attractive. But in the short-term trading strength have been equally distributed among all three

Q: For trading on the Nifty what kind of range are you working with right now in the short-term?

A: Ranges tend to give you good results in a certain market. But in the last two-three weeks there have been so many numbers and so many moving averages or trendlines or whatever methods people use to peg in levels, there is a large battery of levels from here to 5240 there is a decent number of layers from here down to the pullback to 4,780.

So more than numbers what my mind is switching over to is more for looking at momentum reversal studies and getting pegged on to a particular number is more risky here in choosing a trade rather wait for certain patterns that have given you good results in terms of grabbing a trade. In that sense 4,780 or 4,870 might be the area where a pullback comes and if it does not come and these markets keeps going to 5,240 maybe one will not take any trades on Nifty at this moment on the long side.

Q: What’s your general sense about the medium term outlook, do you think local and global markets are doing a relief rally kind of a number which is essentially a pull back from oversold ground and no more or do you think a consolidation which we saw around the last one month or so has put a floor in place and we are ready to move up?

A: I would be making certain guesses here, I can’t really see into the future with any sort of clarity more than 50%, but within the studied guess work, I will break this into 3 parts. The global markets vis-à-vis the local market study and the various components within the local market.

When it comes to the S&P and the Dow, there is an inverted head and shoulder that we spoke about on the Dow Transportations Index that has been very well validated and has broken past that and has perhaps clearly secures the bottom on the Dow Jones Transportations Index whereas the Dow Jones Industrial Index which is what is more commonly and more popularly tracked has a sort of inverted head and shoulder but is not the one because volume confirmation and such things which has not come by and it still looks like a rally emerging from the bottom with a re-test of the bottom clearly looking like pending.

On S&P futures, say perhaps the upside resistance number for the coming week is perhaps 1,439 which leaves around 2.5% 3% of an upside further from here But it is going to be too early to state that the January low is clearly the low, we might see 1% lower than that around there, and a re-test is clearly there. If we get out of the US markets and look at FTSE the picture is not very dissimilar from here and if we compare the peers in the emerging market space, Brazil continues to be around at its all time high, China really around last 2-3 years low, its still not showing any signs of bounce back, and Russia is somewhere in between, and India has perhaps been the second worst performer across all of these categories.

If you look at Hang Seng or Taiwan, or even the Nikkei, they sort of have given the first relief rally and retests are pending on them, they may not go back to the same old levels of January, maybe 5%-7% higher than those and I think its still early to say that the low is completely done with and a deep pull back in many names may not come.

When we look at sector wise, with India, on a medium term outlook, the sort of space fillers, where the Pharmaceuticals and the FMCG space, its time to pare down exposures there, if HUL goes lower than Rs 217, then you would here a lot of voices that its good for Rs 147 or Rs 145 maybe and ITC perhaps is making a cyclical top. If Ranbaxy is looking like one or one and half year rally of the broad 3 year correction perhaps getting over here, so maybe for all the fundamental news that may come out on that, Ranbaxy might be a sell at every rally from here, or a Dr Reddy’s is not going up further.

So Pharmaceuticals and FMCG perhaps were the space fillers which prevented Nifty from going beyond a 35% correction while Reliance Energy collapsed by 50% or more. Cement is not looking like going really anywhere. IT upmove is still looking like a rally of the one year corrections that they have produced and I think in the medium term, there is a lot more consolidation that perhaps the market is going to make between 4,400 to 5,300 levels

Disclosure: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.

Source: Moneycontrol.com