Don't rule out 5-7% bounceback in near-term: JM Fin

Q: What are you working with now, in terms of supports for the Nifty? 

A: For the last 5-6 trading sessions, the way the markets have been correcting, we were looking at levels of 14,000 and 4,100 on the Nifty and with these levels being tested today there is a case of a potential bottom at these levels at least for the short-term. From a medium-term perspective, it is difficult to say that the pain is over. But clearly from a short-term perspective, given the 1,800-point correction in the last six trading sessions, you have just about every technical indicator and oscillator on the daily and on the weekly charts oversold with multiple positive divergences. When you have something like that coupled with the fact that the long-term support of 14,000 has been tested and with pessimism all around, these are levels for aggressive bottom fishing and I would not rule out a 5-7% kind of a bounceback on the Index in the near-term. Markets are looking oversold - we could be witnessing a selling climax at these levels and you just have to be a braveheart to go ahead and buy in this market.    

Q: You are talking about a trading bounce of 5% but in the medium-term, would you concede that the technicals of the market are weakened considerably since you spoke about 18,000 and the market holding those 15,000 levels? 

A: Yes, we had a target of about 18,000; we did about 17,800 - so it was just about a few hundred points here and there. Then once important support levels were broken in the last two-three weeks; we had to change our stance as well. But then if you look at the bigger picture, a correction from 21,000 to 14,000 is pretty huge in any kind of a scenario. We have done a 38% retracement of the entire bull market - that is 2003 to 2008 and 38.2% retracement is pretty big from a technical retracement perspective. This is a potential bottom for the entire medium-term but then it’s too early to predict. The next one-week would be extremely crucial and if you were to rebound with volumes from 14,000, there is a case for a medium-term bottom as well. But I wouldn’t buy that view. These are great levels for investors to get in and stagger their funds from these levels. 

Q: What are the charts of some of the Index heavyweights suggesting to you? Are they suggesting that they have bottomed out or are they looking weak the Reliance and SBIs of the world? 

A: Most Index heavyweights have corrected anywhere between 30-60% over the last few weeks. So just about every Index heavyweight technical chart is oversold at this point. So the view is very similar to that of the Sensex and the Nifty. Therefore sectors like Information Technology, healthcare possibly even banking, which has been hammered down in the last couple of weeks -all of them are looking oversold. So there is a case for a secular rebound from current levels and you could see participation from the largecaps and the midcaps.  

Q: Just on that subject of IT stocks, what is it that you see on their charts and any correlation that you draw between what happens with the IT Index and what happens with the Nasdaq because that’s being underperforming as well?

A: The Dow and the Nasdaq have tested important support levels yesterday; on the Dow 11,700 was the March low and the fact that even the US markets are looking oversold and the fact that IT as a space has been a big outperformer in the last couple of months, is going to be the case going forward. If you have to pick any sector to play the rebound, it has to be the Information Technology space because that’s a sector, which can quickly rebound by 10-15%, and you don’t have too much negative newsflow at this point. IT is likely to remain an outperforming sector at this point; given the fact that even Nasdaq is close to very important support levels. 

Q: Because it is important perhaps psychologically as a figure if the market were to go on and break 4,000 in the next few weeks, what kind of levels would you watch next? 

A: We don’t have any further levels on the downside at this point because we believe that this zone of 4,000-4,200 on the Nifty and 13,800-14,000 on the Sensex is big and only on a closing below the same, maybe you could see another 200-250 point drop on the Nifty. But we are not working with that strategy these are levels for bottom fishing from a trading perspective, you could simply avoid the market for the next few days because there is so much newsflow to absorb. But from an investor’s perspective, these are great levels to enter through the mutual fund route ideally.  

Q: Taken a look at the charts of crude lately? 

A: Crude might just be the reason for a global rebound because in this zone of USD130 -140 per barrel - we are spotting distribution patterns on the chart of crude oil and just like Indian markets completed its uptrend in January, you had gold and silver topping out in the month of March. There is a case of crude at least topping out temporarily in the next two-three weeks and I wouldn’t rule out a USD15-20 correction in crude all the way down to that zone of USD 110 - 115 per barrel over the next 4-6 weeks and that will be really good news for the global markets. So crude might just be the trigger for the global markets including India to rally from here.