Dhiren Sarin, Technical Analyst, Barclays says that global market rally may push Nifty to 6350, but gold may not be able to sustain the bounce back from last month's crash.
Buoyed by the rally in global markets, Nifty is likely to touch 6350, if it manages to break peak of 6115, but gold may fall back to USD 1400 per ounce as it is not yet showing any sustainable signs of growth, Dhiren Sarin, Technical Analyst, Barclays told CNBC-TV18 today.
Rally in global markets have built up a momentum in the local markets. On Wednesday Dow Jones industrial average and S&P 500 both ended at their all time highs. While S&P 500 crossed 1600, Dow Jones rose more than 15,000. Sarin expects this rally to continue for some more time. He sees S&P 500 touching 1695 if it crosses 1,650.
On gold, Sarin said that it is still not showing signs of complete recovery. “We are quite patient in this trade, in fact allowing for more volatility…” he said. He expects gold to trade in USD 1,380- USD 1,530 range.
Below is the verbatim transcript of Sarin’s interview
Q1: We have been looking a bit nervous around that 6100 level which is our high for the year and a lot of people are watching. Do you think the market can take it out? Is there still a lot of momentum on the upside?
A: We think there is momentum building here, there are three reasons and the three reasons are the big markets such as the Dow industrials, S&P 500 and dollar-yen have gained significantly. For example, the S&P 500 breaking above 1600, Dow above 15000 and more recently dollar-yen above 100.
This is a trickling effect of positive risk sentiment and the repercussions of this are global in nature. Indeed we are seeing this in Thailand, in Philippines, in Malaysia, even in lagging stock markets like Taiwan. They are catching up and taking out their highs of last year. So the Nifty, Sensex outlook has improved for these markets. We think that 6115 is the peak of this year and that is vulnerable. If we start to break that then this would confirm that the markets can extend towards the more significant peaks around 6350. Those are the peaks from 2008 and 2010.
Q: Just to take those global parameters one by one, first for the US markets both on the Dow and S&P, what kind of targets do you see and any signs at all technically that either of those indices are looking toppish?
A: Firstly, the breadth what we call the internal sort of volume, the advancers, the decliners, the percentage of stocks above the 200 day average - all these technical indicators are supportive of the rally. So we are positive on these markets. So to speak, the leaders are showing the way to the troops and leading the way forward. So this is what we want to see with the S&P 500, with the Dow. Can they sustain their gains above 1,600, 15,000. For the time being we think yes they will. We are sticking with the bullish trend for those who are long on the Dow - the stocks are likely to be below 14,000. If that starts to breakdown then we will certainly change our view but for the time being, the way is higher. I will give you some targets on the S&P 500 since you requested that. Our targets that we have set in the beginning of this year were around 1,650. That’s in striking distance very closed proximity. If we get through 1,650 then the next target would be around 1,695. Certainly the chances are becoming more possible to reach there before year end.
Q: What tied in with a big move for many emerging markets like ours was the crack that we saw both on gold and crude. On those two charts, what do you see - more weakness or have they sort of stabilised after that period of extreme correction?
A: Gold was phenomenal, we had about 15 percent decline on that crack through USD 1,525 per ounce. We have seen about 10-12 percent rally but it is not uncommon when you have such a sharp breakdown to have an equally aggressive rebound. It may have caught a lot of people off guard. Our preferred view is that the bigger picture for gold is not showing a sustainable bull sign yet. We are quite patient in this trade, in fact allowing for more volatility, and see it trading in USD 1,380 per ounce to about USD 1,530 per ounce range. Now that we are getting closer to towards USD 1,500 per ounce, we would start to look top further and drop back to USD 1,400 per ounce. On your question about WTI crude, Brent crude, about 13 percent rally in WTI crude off the April lows is starting to turn some people bullish. But clearly USD 100 per barrel in WTI crude is a big round number, big handle, just like 100 in dollar-yen was a big number. So for oil to become ace trade like dollar-yen was, we need to start to crack USD 100 per barrel. Until this, this market is quite range bound.
Q: There has been some talk of a correction coming in the second half of May for equities. Technically, would you say that trade is still to buy on dips and to keep long on equities?
A: You make an interesting point. We did see some seasonality on May and clearly, the adage is ‘sell in May and go away’. But what we found is usually the bearish seasonality kicks in, in the third-fourth week of May. So there is a potential that we get a pullback later in May but for the time being we aren’t picking talks here. We are more trend followers so for the time being we are looking to buy dips until we see stronger topping signs in price because often seasonality is not enough to start to change a view.