Technical analyst Anil Manghnani, Modern Shares & Stock Brokers feels that global cues will be the key in deciding Nifty’s course ahead. He told CNBC-TV18 that one should now closely watch the movements of dollar index and the euro.
The euro is only had a one day rally and is now trading below 1.2430, which means has negated all the good news of the EU statement. The dollar index also closed at 83 last Thursday.
"If the dollar index starts to close above 83 then that becomes a big problem for equity globally and even commodities. A dollar rally normally leads to a global equity and commodity correction," he added.
Meanwhile, he feels that range of 5,400-5,420 will be a major test for the market. The market still looks good for a buy-on-dips, but that dip needs to come otherwise it starts to get a little stretched on the upside, he suggested.
Below is the edited transcript of Manghnani’s interview with CNBC-TV18. Also watch the accompanying video.
Q: We were speaking about the banks earlier, how do you see the bank Nifty move from here because it has now gotten back to a three and a half to four months high, what kind of moves are you expecting there?
A: It is very close to a crucial breakout level. It is close right at a trendline at about 10,650 and the 76% retracement is at about 10,690. If it starts to close above 10,700 actually it is a fresh sort of breakout for the Bank Nifty. That could be one of the key drivers for the market. If the market had to cross the crucial level of 5,400-5,420 then it could be the Bank Nifty that is going to behold the key.
We saw some of the stocks like an ICICI Bank also suggesting a breakout move yesterday. So it will be interesting how that plays out. The key for India now is global cues. Ideally when you have government intervention which I am not a big fan like I have mentioned before, you probably get a 3-4 days short covering rally or short squeeze which you saw across global equity markets and commodities.
Now the key is that they don’t close below the close of last Thursday because the intervention came on Friday morning. But one of the asset classes and I am watching very closely is the dollar index and the euro. Unfortunately the euro only had a one day rally last Friday post the EU statement, it has come and closed now below the close of last Thursday, which was about 1.2430.
It is trading below that, that means it has negated all the good news of the EU statement and similarly the dollar index closed at 83 last Thursday, it is about 82-86 right now. If it starts to close above 83 then that becomes a big problem for equity globally and even commodities.
This is because we have seen atleast in the recent past a dollar rally normally leads to a global equity and commodity correction. We will have to keep a close eye on the USD index because the euro has clearly broken down last night.
Q: For our own market though, what is your sense of which way this is pushing, is this phase of consolidation towards the up, should the mindset still be a buy-on-dips for this market?
A: I think for now yes, I wouldn’t call it consolidation because you don’t have consolidation after a 10% rally. Normally consolidation should come at the bottom, but we have seen India is a very high beta markets so the last 18 months, every move has been sharp anywhere between 500 and 800 points on the Nifty one way up or one way down.
There has very rarely been a distribution pattern at the top or a consolidation pattern at the bottom, which makes it very difficult for traders or even technical guys to call tops and bottoms because they just happens too fast.
My gut feeling is still this 5,400-5,420 is going to be a major test for the market, not only is it a 76% retracement. There are a couple of trendlines coming right at 5,420 right now, so it is going to be an important level to watch.
Maybe ideally since the market has moved 500-600 points, if it gave up a couple of 100 points, it wouldn’t do any damage to the charts.I it will probably help more money that is waiting on the sidelines, coming to the system and then better fuel the rally.
So ideally yes, the market still looks good for a buy-on-dips but that dip needs to come otherwise it starts to get a little stretched on the upside. Right now everything and anything is moving any high beta names that had not moved.
Even post the breakout of 5,200 only you have seen realty, power, sugar stocks, telecom all these had not moved right upto 5,150 rally. They have only moved post Friday’s breakout. Many of them are playing catch up. When everything starts to move, that is when you worry that maybe a little correction is overdue because now people are buying anything and everything.
Q: Give us a quick check on the rupee and the way you expect it to move from here?
A: I think 57/USD was a big support for the rupee so I am not surprised. Given the way the movements have been sharp even when it depreciated, no surprise that even the appreciation was quite fast. I think 54/USD is still a very important level, it is the 38% retracement of the recent move from 48.60 to 57.33/USD so maybe for the short-term it will hold 54.
Possible it will try to go up and make sort of a lower top on the dollar where maybe the rupee depreciates back to about 56-56.50/USD. Then I think you get a bigger rally in the rupee all the way to 52ish levels. Maybe in the short-term, there can be one more depreciation in the rupee, but atleast for now it clearly suggests that 57.33/USD should be the low for quite sometime now.
Q: You were talking about the banks but you are selling HDFC this morning?
A: I went both ways, I took a buy call on Axis Bank and a sell call on HDFC because I am still not sure what the bank Nifty will do , will it breakout or not. I went both ways and sort of a hedge. HDFC is one of the weaker ones in the banking pack. This stock used to always lead every rally in the bankex, but it is not doing that anymore.
The level of Rs 682 is a major 61.8% retracement so it is probably more a profit taking call. Since the stock has rallied from Rs 600 to 680, one can take a profit on it and maybe if you are shorting it then keep a stop of Rs 690.
Q: How do you play this big midcap outperformance theme, do you get the sense that that is where the market is going to push at through the course of the next few days?
A: Yes, you have to. The game now is changed to high beta. The story for FMCG maybe even IT, pharmaceutical, may not collapse right away, it may hold on but not appreciate much from here for another quarter or two quarters. One thing is very clear, even if the market were to crash back, the lows for midcap stocks have been made. At the worst they may retest their lows.
But you get the sense the way they are starting to move and being lapped up now that the base has been built finally. Maybe not this year but sometime next year this is where the major breakouts for these stocks will happen. Every dip is a buy in a high beta and every rally is a sell in defensives and that is going to be the theme going into next year.