Devangshu Dutta, consulting editor, Business Standard in an interview to CNBC-TV18 said, "It is notoriously difficult to set a target on a breakout. You need to set a sliding stop loss, so that every time the market moves up, you move the stop loss up to ensure that you retain some profits and stay long until you see the trend change."
One can go in for high beta stocks, which seem to have participated heavily in the rally, said Dutta.
Below is the edited script of his interview with CNBC-TV18’s Latha Ventakesh and Ekta Batra
Q: How would you trade the Nifty from here on? After this fairly heady run over the past two days, today seems to be a catching of the breath but despite the weekend would you ask people to retain their longs? What kind of target are you looking at?
A: We had a breakout to a new high, so this is a situation where you would tend to be long. It is difficult to set targets because any new high means new territory essentially. The market was roughly moving between 5600 and 5800 for almost three months, so on a rough rule of thumb principle you would now expect that on a breakout, it would move about 200 points, the entire width of the previous trading range. That would work out to levels of something like 6,025-6,050.
It is notoriously difficult to set a target on a breakout. You need to set a sliding stop loss, so that every time the market moves up, you move the stop loss up to ensure that you retain some profits and stay long until as you see the trend changes. So, here I would say that set a stop at something like 5,750-5,700 if you are prepared to hangout for 10 sessions or so.
Q: Considering that you are expecting an up move, what stocks would you expect to contribute to this upside and any recommendations in terms of stock specific longs?
A: In the last couple of days you had a lot of stocks breaking out to the individual 52 week highs. HCL Technologies for example has had a successive series of upsides. Then IDFC has broken out, HDFC has broken out. You have a sharp recovery in like Larsen and Toubro (L&T) and today also in Bharat Heavy Electricals (BHEL).
Although this will keep changing, I would say that one can go for the high beta stocks, which seem to be participating heavily in the rally, at the moment. That means financials, realty and essentially stocks that have been generally tended to be more sensitive than the Nifty itself.
Q: Would you watch Karnataka Bank? Is it time to get in or too late to get in?
A: There is apparently a strong uptrend in Karnataka Bank. It is not a stock; I will follow with a great deal of interest. Karnataka Bank has a strong uptrend and if you get in then keep a sliding stop loss, so that if the stock moves up, you move your stop loss up. Do not enter a stock like this without fairly decent stop loss.