Equity benchmarks made a remarkable recovery on Friday on short covering, the markets closed near day's high. The Sensex closed up 179.75 points at 20103.53, and the Nifty ended the day 55.30 points up at 6,074.65.
Mithil Pradhan of Violet Arch Capital Advisors sees the Nifty heading towards its all-time high. "There is lot of upside momentum. The rally will continue from here and at least 6,120 should be achieved before any bigger correction can be seen immediately," he said in an interview to CNBC-TV18.
One should play the rally and the upside using a stock specific approach. "I would stick to stocks which are showing a positive relative strength like Kotak, ICICI Bank, Axis Bank or Tata Motors, which has shown superior relative strength, he suggested.
On sectors, Pradhan is bullish on IT, oil and gas and banking. "The Bank Nifty will soon see its all time high. The oil and gas index has given a breakout above that 9,000 level. I see about 10,800 level in the next one or two months," he elaborated.
Below is an edited transcript of Mithil Pradhan's interview on CNBC-TV18
Q: How do you see the Nifty after Friday’s pullback?
A: At least in the short-term I do not see a problem, because the carnage was more or less in the weaker stocks like the infra or the realty stocks. From a technical viewpoint, Nifty carries a make or break level at around 6001-6019 which will be followed up by 5950 on the downside. When we bottomed out on Friday, there was a diagonal pattern at around 6000 area, so that suggests that immediately we can move to about 6120 levels.
I am not concerned about the short-term, because the momentum is up. There is no clear resistance at least at this point of time, but one thing we need to realise as investors or traders, Nifty is approaching the all-time highs and so is Bank Nifty. We are about 4-5 percent away from the all-time highs. Same goes for Dow Jones or S&P 500. S&P 500 is creating a diagonal pattern which gets terminated at around 1510-1525 and diagonal is a topping pattern. So, if we see some weakness from that level the reaction will be seen all over the world. Same goes for Hang Seng.
We are very near to 24000 levels which has been a resistance in the past and most importantly Shanghai Index which is near the make or break level of 2297-2359. Once Shanghai moves above this level, only then the intermediate bull trend in Chinese stock market will begin. All these factors suggest that at this point of time, I will play the rally, I will play the upsides, but I would stick to stocks which are showing a positive relative strength. Like private banks including Kotak, ICICI or Axis or maybe Tata Motors which has shown superior relative strength.
In sectors, I will stick to IT and oil and gas apart from banking. Oil and gas index has given a breakout above at 9000 level. I see about 10800 level in the next one or two months. Reliance Industries or Oil and Natural Gas Corporation (ONGC) are showing good chart patterns on their daily charts. There is lot of upside momentum, but at the same time I will be non-leveraged, because we are approaching a major top which looks like a triple top at least at this point in time.
Q: Any kind of downward foray from the Nifty has got arrested at around 5950-6000 zone. Considering possibilities of topping out, do you expect to see downsides greater than that?
A: A larger downside can occur. I follow a price-based method. As the market moves higher or lower it gives a feedback as in what to expect. I am looking at three things. One is Nifty at 5950 which is the make or break level. Once 5950 is taken out, I will look at 5750 or 5800 sort of level. 5750-5800 levels will become my intermediate degree make or break level and a major carnage can only be seen once these levels are taken out. At the same time, I will also look at CNX Midcap at around 8280-8290.
On Friday, there was a thrust from around this level. If we have a follow-up today, then we can see midcaps again starting the bull phase from hereon. Similar thing goes for small cap, but small cap is one index which has shown a mega oversold, when oscillators make a new low without price making a new low and that is a concerning fact. Considering the history of bull and bear phases, you will see that the poor quality stock, like small cap stocks or infra stocks put their best run somewhere in the middle of this bull phase and not towards the fag end of the bull phase.
I am not immediately bearish on any of the Nifty names except a few auto names. I still feel that the rally will continue from here and at least 6120 should be achieved before any bigger correction can be seen immediately.
Q: Have you studied destruction in any of these popular midcaps from last week, charts of Housing Development and Infrastructure (HDIL), IVRCL Infrastructure & Projects or even Jaiprakash Associates which fell quite a bit?
A: Yes, I have. Infra stocks or a lot of realty stocks never entered a bull phase in first place but now I see most of the sectors into a bull phase. They have moved above their individual make or break levels but not the infra stocks or the realty stocks. GMR Infra, about a couple of months back created a dangerous flag pattern which suggests that it will move to new lows.
A few weeks back it was creating a corrective pattern and I am sure it will make a new low. HDIL had brilliant make or break level at around Rs 88-89 levels that has been broken. I do no think HDIL is coming above that soon. If you look at IVRCL, while the market rallied about 25 percent IVRCL was creating a descending triangle pattern which is a bearish pattern.
I do not want to scare investors but as far as that particular pattern suggest, I see a target of about Rs 20 on the stock. I have been studying a lot of infra stocks from shorting point of view, most of them are showing distribution patterns and a new low is on cards for all of these names.
Q: What about Oil Marketing Companies (OMCs) or Gas Authority of India Limited (GAIL)? Do you have any trading ideas there?
A: I have been eyeing GAIL for a very long time since it was around Rs 320-330. The only concern was Bombay Stock Exchange (BSE) Oil and Gas Index which was not moving above the make or break level of 8900-9000. Since both Reliance and the oil and gas index have moved above this particular level, their individual make or break levels, it is good time to invest in oil and gas stocks at this point of time.
Considering GAIL, it is not a short-term trading idea, but a medium to long-term trading idea. GAIL completed a huge correction on monthly charts or can be also seen on weekly charts. The overall configuration of oscillators or even Relative Strength Index (RSI) is extremely favourable for long positions here.
My long-term target on GAIL stands at about Rs 550-600. It will make a new high in the next two-three years, but even in the short-term it has created a flat pattern which got completed at around Rs 340. So with the oil and gas index in a positive bias, investors should look at this stock. Rs 390 is given in the extreme short-term.