Global mkts not in sync; disturbing Indian mkts: K&A Sec

Sushil Kedia of K&A Securities feels that there is asynchronization business across the global market space, which has drilled down the individual stock levels and is making it psychologically a very difficult market to trade. At the same time, the sort of amplitude or the swings that we have been used to are not materializing. He said, "Given this backdrop, this down draft that we have seen in the opening today is a cause to look for a short trade here and it is going to be very dangerous."

 Excerpts from CNBC-TV18’s exclusive interview with Sushil Kedia:

Q: How do you approach it now? We attempted small upmoves last week or through the week but it seems not to be sticking at higher levels?

A: This upmove was sort of schizophrenic with very different groups of stocks behaving very differently, similar stocks again behaving differently. State Bank of India (SBI) moved up and ICICI kept on sticking lower. Hindustan Lever has produced that bounce up but ITC refuses to participate in this upmove. This sort of dissonance or asynchronization is not just within the stocks that I see. Perhaps in my lifetime, I have not seen a situation that I am seeing across all global charts.

Dow Jones has gone to a point where it has completed its structure for the down move and a good rally should come from here. While S&P is displaying signs of requiring three-four more days time. FTSE is still going to take couple of more days to reach upto the same pattern equivalent of Dow Jones while DAX has done it. Hang Seng has still not broken down below the March lows and China has started showing the first signs of very strong divergence to come in place, and the next three-four days should form a final secure bottom. So, this whole asynchronization business across the global market space drilled down the individual stock levels and is making it psychologically a very difficult market to trade. At the same time, the sort of amplitude or the swings that we have been used to are not materializing. Given this backdrop, this down draft that we have seen in the opening today is a cause to look for a short trade here and it is going to be very dangerous.

Going long does not sound logically consistent with any of the environment and with the bits of news flow around us. But looking at the structure of the prices, in the next 15 minutes there is going to be a long trade coming, if 3,830 is not broken. In simpler words, keeping a stop under 3,830 for a short-term trader over the next one-two days sees a long trade coming, which needs to be increased and pyramided upwards, should 4,000 is to be taken out on the higher side.  Now within the structural patterns that I see right now I do not have the courage to say market is in a hurry going above 4,200-4,250 right now.

Q: Even people who have been taking long trades the small intermittent pullbacks are ending far below the targets, which people are setting for themselves and then you get a fairly significant pull down. What’s the right way to trade this? Earlier you would play for a certain Nifty target and the market would get somewhere close to that but now rallies are too strong a word the upmove seems to be fizzling out in a day or two before those targets come.

A: The upmoves are not materialising to the size that one would anticipate on the names you are looking at. When there was a near consensus that State bank of India (SBI) should go and break down into three-digits, it produced the far sharper rally than the most optimistic bull would have also imagined. If I have a choice available to me, I should be on holiday. Since most of us don’t have the choice, we are participating in markets and these are challenging times, there are so many intellectual inputs that come in to inspire fear and yet prices are behaving in their own ways. So, just following the price and making shorter-term time horizon or humbler target trades is what is material. Sometimes the market is going to be like this and we can’t dictate terms with the market.  

Q: Eventually do you see the possibility of 3,850 breaking and the Nifty going to much lower levels that seems to be a consensus, which is forming from people of your breed?

A: It does not look likely that it is going to happen right away. I would not place more than 40-45% kind of chance on that. It may happen post this rally going to 4,000 or 4,250 and in the downswing that may come in the next week while we have that trust vote on the July 22. Whether it will break 3,850 or not, I don’t have a system by which I can predict. But, as of now it does not look that it will go significantly below 3,700. So, these numbers and the traditional way of trading is sort of becoming irrelevant at this moment. The best choice is to stay out or have very small trades. If one has to keep trading, one has to make those humbler and software targets.

Q: Are you talking about short-term trading trend, which might emanate from 3,850 as a bottom or are you saying that this could be a final bear market bottom?

A: I wish that it turns out to be the final bear market bottom but it is too early to say it. I am unable to rule out that this might not actually turn out to the bottom but there is perhaps time at least of a week to two before one can start seeing with any degree of certainty, whether there is a continuation of this downtrend or this is a final bottom. We are still on the left side of the bottom in terms of time.

Q: Have you taken a look at Ranbaxy’s charts?

A: Given the sharp down move yesterday, Ranbaxy could have produced that short covering bounce up but it has failed to do so. With today’s further down move, irrespective of at what price the open offer exists, there is too much of news on the either side of the trade and following the price seems to be more logical. There is substantial downside left on this, Rs 30-40 bounce can’t be ruled out but once that comes the trader should be looking at argued signals for going short.

Q: What are the banks charts telling you?

A: I have been sort of wrong on ICICI Bank for sometime. In the last 10-12 days, it has not behaved the way I would have anticipated it to. But, it looks like that’s one stock which ought to be pushing up reasonably well in a very short-term of next three-five days while SBI might continue to slip further lower.

Q: What’s the chart of crude suggesting now because it went to USD 136 per barrel and then has bounced right back close to all-time highs?

A: On crude, there are two mixed things. On the weekly charts, there is a very humungous divergence coming in place. Price continues to make higher highs while the momentum or the velocity of change in price refuses to form higher highs. That typically is a precursor to a very long-range reversal whether on the upside or downside to come. A similar divergence has also started coming on the daily charts but until crude breaks lower, I can’t rule out that in a single day it can jump up USD 5-10 or in a two-three day period it can produce that USD 10-15 kind of a jump.

I don’t want to open a long trade here looking at these divergences and the standard counts. At the same time, except for the maintenance of the long-term correlation between the Euro and dollar vis-à-vis the crude in terms of dollars, correlations in all other markets are breaking. Ever since the Euro came in as a currency, it is for the first time that was towards the end of last week major global voices real big names have started expressing some deep concerns about the sustained uptrend on Euro.

Once Euro settles down into a reversal then on a logical or an argued or a researched kind of an idea, a short trade on crude will make sense. But, next three-four days, give it a pass and wait and watch. If a USD 5-7 dip comes, you would take in for a short trade but without a target beyond USD 117 per barrel for now.  I don’t have the courage to say crude will slip past USD 117 per barrel before making new highs again.