Momentum to continue if Nifty crosses 5256: K&A Secs

Q: Is there still a short play to initiate on this market and at what point would you open that?

A: Shorts keep coming by and between on various individual securities. Nifty as of now, does not look like to be a case to be short on this strength, from a strategic perspective. If you are doing tactical trading, you have that nimble-footedness available to your portfolio. You are happy taking a one-day position; maybe it’s a short for now over the next three four five hours until 5,256 is taken out. But to talk about a short in terms of a portfolio hedge, in terms of looking for a broad sweeping directional move over 10-15 days, this is not the moment to look for a short on Nifty.

Q: As a technical trader, how important was it to you that the Nifty crossed it’s 200-DMA yesterday?

A: There are many systems and many techniques that are available in technicals; perhaps moving averages give mentally comforting triggers to a lot of technical analysts and traders. I, for my own reasons have stopped using them many years ago and I had explained that earlier. Whether a 200-day moving average (DMA) or a 100-50 DMA or a 500-DMA; what the moving average essentially does - you are taking the closing prices of last 200-days averaging them together. Roughly speaking, any end period moving average that you take, you are essentially comparing a breakout above that or below that by essentially comparing the current price with end by two-days previous price; a 200-DMA you are roughly comparing 100-days ago price.

Now why should the number 100 be important or 99 be less important? People have gone on to do statistical back-testing and curve-fitting; keep checking end number of different days of moving averages and see which one gives the best results. This best results number is also not fixed or static - it keeps on changing with market regimes.

So to invent a system which is not a good; system is perhaps worse, I am abandoning that system and still trying trading without a system. So that is one reason for which I really don’t give much weightage to moving averages. They may be important in terms of a short-term sentiment trigger - let's see this 200-DMA also over the last four-years in this bull market. The point to go short by this moving average crossover rule would have been - 200-DMA breaks, you go short. Such a trade would have given you profits for a couple of days. But the sharpest upmoves, the sharpest pullbacks for the best buying moments have come when actually the 200-DMA got broken. But those were really the biggest and the best moments in this four-year bull market to really capture a really big upside move.

So I don’t want to really dismiss somebody who is comfortable with moving averages; I am not.              

Q: What about the medium-term trend on the Nifty? After this pullback that we have seen from roughly 4,500 to 5,200 - do you get the sense that the basic trend has changed we have resumed an uptrend or you are not comfortable with that hypothesis yet?

A: On a trading timeframe, it’s clearly an uptrend. But say if I will have to stretch it to a speculative timeframe of more than 3-4 weeks, trying and looking at an investment bottom, it has not yet given me completely full signals or the gumption to go ahead and say we will not revisit 4,600. There are many ways in which you play around the data - one thing we tried doing over the last 3-4 days was to do very simple things, which you can do take the total market capitalisation of all listed stocks on the NSE subtract from there the market capitalisation of the Nifty stocks and express the market capitalisation outside of Nifty as a percentage of Nifty to roughly arrive at what might be called a flight to quality indicator.

The definition of a bull market is that people will give up care; then there will be a lot of abandonment of caution and people will get into very speculative moods of going and including very smallcap or known stock in their portfolios.

Until a retest back to 4,900 area is held and it does not slip below 4,900, I would still call it early to dismiss the possibility of a revisit of 4,600.