Do not use euphoria gap-up for mkt entry: Ashwani Gujral

Technical Analyst, Ashwani Gujral feels that today’s euphoria gap-up should not be used for entry into the markets. I think this is a more prolonged kind of a pullback and one will finally see some cool off and around 4,200-4,240 people can re-enter. Anything beyond 4,800-5,000 is probably unlikely at this point, Gujral feels.     

Excerpts from CNBC-TV18's exclusive interview with Ashwani Gujral:

Q: We are expecting a gap up but where do you see the market headed from there?

A: I think the 200 Exponential Moving Average (EMA) is around 4,777. So all stocks and the index is likely to broadly head towards 4,650 to 4,750 sorts of levels. Also today’s euphoria gap up should not be used for entry. I think this is a more prolonged kind of a pullback and one will finally see some cool off and around 4,200-4,240 people can re-enter.

I am also hearing lots of euphoria as great reform is going to start from tomorrow. Mainly this government would probably try to come back to power in the next elections and people should just expect inflation measures at the max and use this as a pullback rally and not consider this as a resumption of bull market because this is not typically how bull markets restart where you have five days of a huge rally. This looks more like short covering.

Q: You wouldn’t sell the rally though this morning, outright?

A: Several factors are now coming together to give a more substantial rally. So obviously buyers have changed from a sell on rally to a buy on decline. Today’s euphoria should not be used to buy if somebody is brave enough to carry from yesterday he should probably book some profits. This euphoria will die down in a day or two and then markets will go back and test some lower levels something like 4,200-4,250 and a rally to higher levels will start. So this will be a month-month and a half sort of an affair because we had such large declines but goes in the format of a pullback rally only.   

Q: At what point or level though would it convince you that this trade is more than just a pullback?

A: 200 EMA (Exponential Moving Average) and 200 (Daily Moving Average) DMA is around 4,777-4,800. So in case we are able to convincingly cross 4,800-5,000 kind of hump that would tell us that probably this was just a sharp correction and the bearishness was overdone and we are probably expecting new highs. But that seems unlikely although anything can happen in the markets but so far investors who are stuck at higher levels probably need to bailout around 4,700 and for traders it’s a nice tradable rally which they should be trying to trade. Anything beyond 4,800-5,000 is probably unlikely at this point.     

Q: What’s your sense after the gap up this morning? Do you think the next leg of the upmove if there is one will be lead by more short covering or you will see some long accumulation and momentum from the bulls?

A: I think not a lot of people have been able to participate in this first leg of the rally. So once this euphoria is out and probably the markets drifts lower more participation will come back in and the next leg of the market will be with a lot more momentum and a lot more participation will come in if the market drifts lower to about 4,200-4,240 because we are straight away coming from the lows there hasn’t been an opportunity for people to reenter in the last four-five days obviously this momentum cannot continue. So for a more sustainable rally some people would book profits on this news and new people would enter as the market drifts lower.