The US markets on Monday ended lackluster as investors hesitated to jump in after the recent rally, but the S&P 500 touched a fresh all-time high pushing above 1600. Laurence Balanco of CLSA believes that the trend for the US market is consistent and extremely resilient and the next target for S&P is around 1,630-1,680 levels.
Meanwhile, he expects Nifty to move up to its January peak of 6100 and it may find support at 6,300 if it manages to surpass 6,100 levels.
"In near-term, we can go ahead and test those levels, but we do not have any technical evidence to suggest that we can push through that 6340 area," he elaborated.
The Nifty could see strong support in 5500-5700 range. "We recently tested this level in April, held that mark and that is where we have rallied from. That is the lower end of the trading range for the Nifty going forward," he says in an interview to CNBC-TV18.
Below is the verbatim transcript of Laurence Balanco’s interview on CNBC-TV18
Q: The big star market has been the US in the way S&P has been moving. Do you see more traction on the upside or are those markets beginning to look toppish technically?
A: We don’t have any evidence of a top forming here. The trend is pretty consistent and extremely resilient. We are looking at the next target of 1630-1680 for the S&P and therefore, we are looking at fresh new highs for that market.
Q: The key development for many equity markets was the way commodities cracked. On those, any signs of more downside damage or what we saw a couple of weeks back was just a flash crack on gold and on crude?
A: If you look at commodities and longer term charts, commodities have been range bound for roughly two years. You can see that in the copper chart, with support around the USD 3 and resistance up at USD 3.80. Also, on the oil price between USD 100-130, if you are looking at WTI or the Brent contract and gold seems to have slipped into a lower trading range before the break below USD 1,500 we had a USD 1,500-1,800 trading range and now it looks like we are stepping in a Rs 1,300-1,500 trading range. There are trading opportunities within those ranges for commodities. As far as structural trends go, commodity markets at this stage are void of those structural trends, so base case scenario is further ranging within those type of patterns.
Q: We had a fairly sharp rebound for the Indian market as well. How would you rate the next direction for the market beyond this 6000 level?
A: There is quite a bit of resistance lined just ahead of us looking at the January high at 6100 and then you have the double top that goes back to the 2008-2010 highs at roughly around 6300.
So near-term, we can go ahead and test those levels, but we do not have any technical evidence to suggest that we can push through that 6340 area. In the near-term, the uptrend and rebound continues and we should be capped by the 6300 area and also see some further ranging activity for the Nifty.
Q: What could be the downside risk at this point for the Nifty?
A: We have seen a strong support in 5500-5700 range. That is the top end of the basing pattern that developed through 2011. We recently tested that in April and we held that mark and that is where we have rallied from. That is the lower end of the trading range for the Nifty going forward.
Q: In case of the US markets though is it a necessary extension that a rally for the S&P and for the Dow would amount to a rally for other global markets as well or do you think we could see differentiated moves over the course of the next few months?
A: If you look at the correlations in the past six months, you have seen a breakdown in that and emerging markets including India have relatively underperformed developed markets including Japan and Europe over the past six months. The divergences particularly in emerging markets can continue. Very short-term moves, if we do see S&P towards that 1630-1680 area we should see the Nifty close to 6300 area. So, the shorter term moves will be in line, but for the bigger picture, we have seen deterioration in those correlations over the past six months.
Q: The classic laggard has been the Shanghai Composite, what do you see there? Are there any ramifications for the rest of the Asian region due to what is happening in that market?
A: In the near-term, we have seen a strong support base formed at 200-day moving average. I am tracking the CSI 300 which is the combination of A and B shares listed on the Mainland and that have found good support at the 2400 area which is the 200-day. It is also the 50 percent retracement of the 2012 move. It is a crucial area and starts to form an important basing pattern. So that stability on the Asia market has at least resulted in a bit more strength across the region.
We have seen the HSI move back about 50-day moving average. We have seen some strength back into the Taiwan market. So if we can continue to hold about 200-day moving average for the Shanghai Composite it should be at least supportive from a sentiment point of view for the rest of the region.
Q: A journey all the way up to 6300 would imply fresh lifetime highs for the Nifty. What likelihood would you attach to it at this point?
A: We are not giving a higher probability of a confirmed break above the 6300 area in the coming quarter at least.