In an interview to CNBC-TV18, Kunal Bothra, senior technical analyst at LKP spoke about his reading of the market and outlook.
Below is an edited transcript of the interview.
Q: A new 2013 high for the market. Would you carry forward your longs next week as well?
A: It's a significant move for the market. One of the very interesting observations, which I want to point out is all of us are talking of 6350 as a crucial resistance for the markets in terms of previous tops. But, it is crucial to look at the monthly charts for the markets because you look at the monthly charts for last seven-eight years, 2007 when we made a new high in terms of closing it for 6138 on Nifty spot.
In December 2010, we made a high again and we closed at 6134 levels; just four points down in terms of closing basis. Now, even if you look at the month of May, so far we have closed at 6110 odd levels -- probably 20 odd points in terms of closing for the month. So even if you have a month closing about 6140 odd levels, I think it already signals on monthly charts or probably long-term charts that we are at a fresh 52 week high, probably an all time high as well.
That is where the crucial resistance for the market will be -- 6140 from a monthly closing perspective, if that happens, 6357 could be very much easily achievable in the next couple of quarters.
Q: What will you do with these highs? For a positional trader, will the dictum of 'sell in May and go away' kick in or do you think you will continue to advice long? What’s the strategy on the Nifty futures for Monday?
A: If you look at the last 15-16 years of data for the month of May, out of 15-16 years, there have been five-six years where the bias for the markets in month of May have been positive. There has been couple of months where May has been fantastically up, I think 15 percent plus, also 20 percent plus in couple of months.
You look at the month of May overall, probably if you look at the submission for the month of May, it has been a positive eight percent for the month of May for the last 15 years. So if you look at the mark, in terms of the momentum building up in the last couple of months, my sense is that if you look at the daily charts as well, there has been never a closing for the last two-three weeks where we have broken the previous low and have closed below the previous low. That's a fantastic phenomenon of a very short term or a medium term uptrend building up.
If you look at the composition of the stocks and the breadth of the market as well, banking stocks led the rally. Axis Bank, State Bank led the rally. Now you are seeing cool off there in terms of these sectors and many of the other sectors are picking up.
The overall breadth of the market is also picking up and that is why my sense is that the markets could pick out momentum from here on as well.
Q: What would be your top picks as we go forward?
A: If I am looking look at two interesting timeframes, one is the short to medium term timeframe, I think couple of stocks which catch the eye is Bata India, LIC Housing. They look extremely positive or probably attractive on charts LIC Housing is particularly.
It is trading just marginally below that 200 day moving average (DMA). I think any time in the next week, if it breaks that I think one can look at a trading pop of 7-10 percent on LIC.
Bata India on weekly charts also looks very attractive. It is building up in the last two weeks. Today also, closing above Rs 800 is a very good sign for Bata. My sense is it could probably touch Rs 860-880 in the next couple of weeks. I think that is also very interesting buying in terms of short term timeframe.
But I think one of the largecap stocks in terms of probably medium term to long terms timeframe is L&T. It is building up very well on charts on the weekly as well as monthly charts and it is on a way to higher high and higher low kind of a formation on monthly charts as well.
My sense is that the previous resistance of Rs 1,700 could easily be broken in the next couple of months if not in this month itself. So I think that is when long term investors can look at the trading pop of 15-20 percent easily on L&T for the next six to eight months.