See another attempt at 16k-17k levels soon: CLSA

Mark Stevenson of CLSA Tech feels that the risk of a downside in the market still remains. He sees the Sensex target below 14000 levels. The Sensex may see support at 12000 levels; 12500 levels is where the large support comes in, he added. Stevenson sees another attempt at 16000-17000 levels in coming weeks.

Excerpts from CNBC-TV18's exclusive interview with Mark Stevenson:

Q: What’s the Nifty set up like right now, do you think we will get away with 4,500 as a support or could we move southward from there?

A: The Sensex is currently trading at 15,800. We had completed in effect to a large cycle move which actually began back in 2003 and this applies not just to India, but to the region as a whole. As such we are now working within a large corrective cycle which will take much of this year to work through, if not through to 2009.

India has been underperforming its regional neighbours and globally and that is going to continue. What we saw in the lows in March was a break below a long term channel that has been in existence since 2003. The rally that we saw into May basically hit the 200 Day Moving Average (DMA) and the upper end of that channel  has failed, we are now back down close to that 15,000 level. In the coming weeks, we may see an attempt to rally again to the 16,500-17,000 level, but the downside risk remains.

Q: How much lower do you think the market can move in this prolonged spate of weakness?

A: Our first target that we established quite some time ago, would be the lows that we made in August of last year, which is just below 14,000 on the Sensex. The much larger level of support actually comes back down to around 12,500 level, so the risk is that we could go down to those levels.

Q: How much conviction do you have of those levels being reached at this point from where we stand? What percentage chance of getting back to the August Lows?

A: My conviction on this is pretty high; of course, timing is always an issue. To prove my thesis wrong, we really have to see the market back to 17,300-17,400. But unfortunately when we are in these consolidations and anyone looking at the chart from the start of this year particularly since February, we have been working with a succession of higher lows and lower highs, which is a triangle type of a formation. It is actually quite difficult to establish any short term direction, but ultimately a break below that triangle consolidation is expected.

Q: What’s the rest of the Asian market set up looking like, is it looking like the rally of the last couple of months have peaked off in most of the other Asian equity markets?

A: The chart patterns have become very complicated, we did see a very nice recovery for March and into May and now we have seen some weakness developing. We have been watching the US markets very carefully. The S&P 500 round about at 1,370 level is a very critical support and yesterday we did see quite a nice recovery off that level though volumes were very light. To become a bit more upbeat for the markets, we really need to see the markets move high to another 4%-5% which would allow us more room to the upside. We could see a repeat rally that we saw from March to April.

But, so far given that the moving averages are still trending down, I am still maintaining a relatively cautious view. Any move above 1,424-1,425 on the S&P, would have to take a moderately more bullish view for the summer both for the US markets and for Asia as a whole.

Q: From where we stand, who do you think will be the biggest gainer by the time we are done with this year between gold, crude and the S&P?

A: Gold has been a quite attractive intermediate downtrend of this year. The dollar has been making a choppy recovery against global currencies and we will continue to see gold under some pressure. An USD 770 per ounce or USD 840 per ounce re-tracement range for gold is seen. Gold is currently trading around about USD 880 per ounce.

In terms of oil, USD 135 per barrel is an important level that we identified a few weeks ago. It has been a sort of a pivot point for our work for quite some time. In order to suggest that the oil rally is over, we really need to break the low below USD 120 per barrel, which has been a level of support. We reversed this week and in terms of an extension of a move in oil, we need to a move through USD 143 per barrel on the upside which is not my preferred view, to expect something more dynamic to the upside. My preferred view is that we are actually going to break USD 120 per barrel which would have a beneficial effect for India. But, for an inter-market analysis, 17,300 level on the upside is suggested for India.