Chief market technician at cashthechaos.com Jai Bala sees the short-term rally in equities extend the Nifty to 5350-5400. However, he believes this is just the beginning of a slaughter on Dalal Street. “The rally is a process of just fattening the curve for the slaughter rather than a new fresh uptrend,” he explained.
Therefore, he advises traders and investors to use the current upmove to exit all long positions.
Bala sees both European and US markets break and head towards their lows. “You are going to see the counter trend rally exhaust such that the US markets are going to go below 2011 low of 1,074,” he said.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: How much can this Nifty rally extend to and do you think the trend is changing?
A: I don’t think the trend is changing. The market is likely to print a little over 5,170 at the open, so that means this market is going to possibly head over the 5,350-5,400. But that will be a process of just fattening the curve for the slaughter rather than a new fresh uptrend.
If you look at the Spanish bond yields, they are at record highs. So when the equity markets and credit markets disagree, you better believe the credit markets and that has always been a prudent strategy. If you look at the euro, the bounce of the lows to 1.27 that is a counter trend rally. Very soon, the euro is going to drop well below the lows it made in May, probably close to 1.22.
If you look at the US markets structure, you are going to see the counter trend rally end exhaust somewhere closer to 1,363 or somewhere maximum of 1,391. The medium-term picture is such that the US markets are going to go below 2011 low of 1,074. So the overall medium-term picture is not good, the short-term is providing some pop, use the pop to drop your long positions.
Q: What’s the strategy on the Bank Nifty?
A: The various arbitraged opportunities are available in the banking sector. If you look at the bank Nifty, the resistance for it is close to 10,380, but very unlikely that it will cross that. If it does cross that, then it is going to face serious resistance at about 10,650.
But as I said earlier, there are a lot of arbitrage opportunities here. The correlation between Axis Bank and State Bank for the last several months has been about 0.91-0.92 so the ratio of Axis Bank to State Bank of India (SBI) is now about 2.5 standard deviation from the medium.
Q: Anything that you would pick out from the cement space in terms of having trading upside from here?
A: Yes, ACC is one of the weakest here but Ambuja seems to be having a lot of strength in the cement space. If you want to be a long here, you might want to be better off positioning yourself in Ambuja. But the upsides are limited and you might want to be quick to now take your profits.
At the moment, you can trail with 4-5% trailing stop loss at this current point and you can be long in the stock.