See downside on Sensex at 11800 levels: Modern Shares

Q: Have you taken a look at the charts of either Voltas or Gujarat NRE Coke?

A: I have looked at Gujarat NRE Coke but unfortunately metal is a sector which I feel has done with on its upmove. That is a sector, which is susceptible to a huge fell off even from here maybe Tata Steel can go down another Rs 90 or Sterlite can collapse another Rs 90. Gujarat NRE Coke is around Rs 108 and the day it breaks Rs 100, which is the strongest support for the stock, it is going to collapse right up to about Rs 84-85 levels. So that is a sector, which one would not trade long even if one wants to buy for a pullback. Metal is rather avoidable.

Q: Can you play for a medium-term pullback in the market right now because these small moves keep happening of 200-250 points Nifty here and there but do you think with this as a base the Nifty has even a reasonable chance of giving you one of those sharp bear market rallies, maybe 800-1,000 points?

A: That is the idea that we have been working on. One will have to play the market from a slightly more timeframe. If one takes Nifty it is at about 3,800, the downside could be arrested somewhere around 3,500 levels, we will have a 300 points on the downside. If you take Sensex from about 12,500 to 11,800 it is going to give one pain in these 300-800 point range but if one can weather that one will try to go up closer to around 4,600-4,700 Nifty and 14,500 to close to 15,500 on the Sensex. That is the kind of mentality one will have to develop, one cannot get in one day and get out the very next day if it goes down. One will have to stay put if one is a timer then maybe some more downside is left but if one is a range buyer then the range has come where one can start looking at one’s favourite stocks. One should give some time to the market; it will reward one around 25%-30% kind of move that is what we are looking at.

Q: Do you think it can be done to get to 4,100-4,200 levels in this move?

A: Maybe we could probably go up roughly to about 4,050 because the markets will have to put up some work on the downside. Bear market rallies do not give spike up like bull market correction rallies. So one will have to spend more time and suppose it has gone up by around 150 points between yesterday’s bottom and today’s tops therefore the next one or two days are going to do the work up there. So if we can do that work, why only 4,100, I am expecting much beyond that for around more than 30 kinds of returns. That is the kind of market I would like to now see. So the upside is quite possible but let us do some more work on the downside.

Q: At what levels for the Nifty would you conclude that it is not making that base building process or not making an attempt to start pulling back?

A: With all the study about the bear markets that we have seen, we had two in 1992 and second one in 2000. I have not seen a bear market rally which does not come and put in a 60% retracement on the downside of the first move. So even if it goes up to 4,050, the 250-point move will have to collapse by about 150-point back and then go up. So, I am not going to go and buy these breakouts. More work needs to be done on the downside. It is not necessary to go and buy on a rampaging 150 point gap up opening. You will get the retracement on the downside.

When the first retracement stock at the .618 (The Fibonacci fan is a three-line tool that uses the ratios .382, .50 and .618.) - that is what we look at in the last bottoms whatever Nifty has made maybe at 4,400 or 3,848 the latest bottom that it did. Every time it was coming down it went below the .618 retracement and that tells you that you are still not done with. If you were to take yesterday’s bottom of 3,790 as a final bottom, we need to see a retracement and the retracement must stop at the point 618 level that is when you will get the first inkling to see that maybe 3,790 is a bottom. So, we are not done up with it and we will have a lot of more work to be done on the downside. If it stops at first level then we go ahead and say we have hit a bottom and now we can go up. So, let us give some time to the market and see what happens.

Q: This one has got a lot of news flow around it, but have you had a look at the charts of Ranbaxy?

A: It is one of the favourite stocks for us but we have given up on the stock at the higher level of Rs 598, it is no more an accumulation stock. It has become a momentum stock newsdriven. On the downside, Rs 402 to Rs 397 could have been the support, it fell up to there and now it is recovering from there. Close to around Rs 490, it is going to have some trouble if it crosses that then Rs 532 but this is a punter’s stock now, it is a trader’s stock now. Investors are not going to be in here, most of them would have sold out at higher levels. Unless those who are waiting for the buyback for the open offer. We have shifted our attention to Cipla completely now from Ranbaxy counter.