Nifty to see strong support at 3960 if 4090 breaks: K&A Sec

Sushil Kedia, CMT-CAIA of K&A Securities feels that the short-term trend would remain up. "If 4,090 breaks, there is a strong support at 3,960 and even if this government does not sail through, I would see if tomorrow Nifty is not lower than 3,960," he said.

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

Q: What is your own take, where do you think this current upmove can take us on the Nifty?

A: For the day today, there is an overhead resistance around 4,210 area. Until that crosses, I do not see a case for a short-term trader to be holding a long position. If one is trading on a one to two days timeframe, given that we have the overnight events. So there is one-two days timeframe; it comes with that rider and to look at the short-term downside until 4,090 breaks on the Nifty, the short-term trend would remain up. If 4,090 breaks, there is a strong support at 3,960 and even if this government does not sail through, I would see if tomorrow Nifty is not lower than 3,960.

I am not going to short this market. Even if market goes up above 4,210, in the next half an hour-fifteen minutes and surprises in the short run, there has been a large gap left from 4,310 down to 4,180 area. We have reversed once from under this gap on the way up, so this gap area is as of now acting as a tight resistance band and 4,210 to 4,300 is a no trade zone. Once that crosses pass, which I think eventually it will until it breaks 3,960; in the medium-term market looks good for 4,500-4,600.

Q: What phase are we in the market now? If you map it from the lows of 3,800, the pullback which has happened and what you are suggesting might happen for the Nifty, how do you see things playing out in the next three-four months from here?

A: The move that I am anticipating upwards from hereon clearly remains in the nature of the rally i.e. there are not going to be very large number of stocks that are going to be really on a sustained basis moving up together. These are more in the nature of pullbacks of this large humongous falls we have seen and moneymaking is generally lot less easier in a rallying phase because the patterns are fairly deceptive. So to sum it up looks like a large nice rally, most likely it should be around 4,500-4,600 though I am ready to face a market which breaks past 4,600 and goes up to as much as 5,200 but I am not able to imagine beyond that, most likely scenario is 4,500-4,600.

Q: There is another view in the market that what’s happening with crude right now is that is actually catching up with the bear market equity is in so crude will cool-off but it is not like equity will bounce back. Technically what do you see on the charts of both crude and where the market might trend over the next few months?

A: Why I said most likely 4,600 and a mental preparedness to see a market even perhaps higher than that do not hoping for it really right away is that across a spectrum of global equity indices there are certain patterns which do create a strong case for a sustainable six-eight week kind of an upmove at the least.

Crude in one sense has had been lagging the equity markets- around last week of December a very similar topping out pattern existed on crude as it has come by in the last week and one felt so secure and so safe that crude is really topping out and even though equities have really moved up so much, there maybe an upward spike the kind of parabolic spike that came in crude was actually anticipated in equities. But markets ended up behaving differently and crude broke out beyond all imaginations and continued to move up.

So as of now it looks like crude and commodities are lagging behind the equity cycle, they topped out later and now they are following suit but I would place far more emphasis on a less talked about chart. There is a Euro expressed in terms of dollars and that has still not broken its uptrend line so until that does so I would still not look for crude levels lower than USD 117/bbl and should Euro start trending lower, one will find a gumption to start revising the downtrend targets on crude.

Q: You said what is happening right now is in the nature of a rally, you are suggesting that this could be a bear market pullback no more?

A: This bear market term is different for different people even if this is a rally and I expect that the lows that we saw last week may not be final at the same end I do not see a substantially lower low than what we have seen in the last week.

There may be a new low coming in which might be 3%-4% lower, maybe 1% lower, it might not even break below the lower low but as of now this looks like a rally which is likely to be retested fully well whether from 4,600 or from 5,200 it will come back to the same level from it started and that is why people are classifying it as of now as a rally.

Q: What is looking strongest to pull back along with this rally because even in this upmove, it has not been sphere headed or led by the usual heavy weights, not Reliance Industries, not really Bharti?

A: Of the largest marketcap names, I think on the Nifty in any case that is a largest weightage as well. I think Reliance is where the biggest steam on the Nifty will come if that materializes. At the same time, there is a very dichotomous scenario here, various stocks are behaving differently. Reliance Petroleum from the same management group until it crosses past Rs 160, which is where it had taken support four times and is now lower than that until Rs 160 is taken out despite of this upmove I am still playing for a move to Reliance Petroleum going down Rs 130 maybe and going long on the Reliance Industries and staying short on Reliance Petroleum does not look a bad idea until Rs 160 is broken upwards.

Bharti did go to that Rs 650-700 area and it has been bouncing up but not really that sort of nice clear patterns or the smooth move in which one can be a trader on this. If you have conviction, stay on that stock as an investor maybe RCOM has a much better tradable trend upwards than Bharti.

ONGC looks good to be 1,100; the lesser traded stock is HDFC Bank, that is where I think 30%-35% kind of a pullup will come.

From the IT pack, Wipro perhaps has bottomed, TCS, Infosys, Satyam have downside to test and despite those upmoves you will find them at lower levels I would not be surprised if Infosys goes to Rs 1,400 before coming to Rs 1,700.

SBI has that wide trading range from Rs 900 up to Rs 1,500, we are closer to the upper end of the range not saying that one should go short on State Bank of India (SBI) here but as it rundles higher further maybe profit taking sells are required in there.

Within the steel pack, Steel Authority of India Ltd (SAIL) looks good for Rs 152. One cannot say as of now whether that will break pass that, should that happen Rs 178-200 couldn’t be ruled out.

NTPC looks good for Rs 210-220 kind of a move. So different packs of stocks within the Nifty-fifty will provide that fillip and because they are going to be moving in different cycles even though Reliance has that 25%-30% kind of an upmove, HDFC and HDFC Bank have that kind of upmove, I am not saying 30% upmove on Nifty trade because it will average out and perhaps 15%-17% bounce on Nifty will materialize.  

Q: You used the phrase ‘That it will be an upmove which will be difficult to trade’. Are you suggesting volatility then in this upmove, not a clean run a lot of stop-start kind of movements and frequent retests of the bottom from which it begins to bounce off?

A: To put it in simpler terms, the sort of patterns of movements that we are used to, do not typically materialise inside rallies or in corrective moves of the larger trend. I will avoid using the term volatility here because it’s a strange term in any case and there are fifty different definitions of volatility. Markets may not produce a larger volatility in statistical terms yet the sort of patterns, the kind of overlapping tops and bottoms, frequent breakdowns of tops and bottoms and people having psychological shifts very frequently onto both sides and statistical volatility is still coming down that’s clearly possible as well.