On Friday, the Sensex shed more than 250 points to hit an intraday low of 17,231.34, before closing the session at 17,373.84, down 129.87 points or 0.74%. The Nifty too closed down 41.55 points or 0.78% at 5,290.85.
The Nifty is in a narrow range, says Sudarshan Sukhani of s2analytics.com. "My approach is mildly bearish", he adds.
According to him, the market will breakout either on the upside or downside. He expects a big move either ways in May.
Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Udayan Mukherjee. Also watch the accompanying video.
Q: We ended last week with a 1% cut on the index. How do you approach today?
A: The approach is to have a mildly bearish stance. But there is something far more important than today's approach. It is the fact that the Nifty is now trading in a range that we have not seen for the last six years. So that's the big story of the day and of the coming days.
The last time the Nifty traded for one calendar month for less than 200 points was in February 2006 and this is 2012. Now, our monthly range for April, so far, has been 190 points. So, the Nifty is actually doing nothing. That is one cause for frustration among traders because if the market doesn’t move then their trading is not going to move either.
One hundred and ninety points for the Nifty is on the back of a Nifty value of 5,000. In February 2006, the Nifty was trading at 3,000. So, in percentage terms, we are at the lowest trading range since May 2002, that's ten years ago.
Now, this narrow trading range can do either two things. One, a breakout or a breakdown is imminent. And that will be a significant move on the upside or on the downside. The second very improbable scenario is in 2002, the Nifty simply drifted for one full calendar year. That doesn't seem likely. But that's what we should be factoring in, a big move in May, up or down or a drift that will be terrible for the traders.
Q: After last weeks weakness, you have a sell call on Exide?
A: Exide was a sell last week also and this is the nature of trends. Exide was on the upside and we were upbeat on it, but finally we saw distribution pattern and got a sense that this is not working out. Short sell last week has made money and I think now the trend is on the downside. So, Exide remains a short sell.
Since we are in a trading range, take small profits. Traders should not expect big moves on either side and that applies to most trades.
Q: Would you sell Adani Enterprises as well this morning?
A: Yes, Adani has been a consistent sell. There is nothing in it. The charts tell us it is almost on the verge of making new lows. It has not done that, but I think it will.
From Rs 450 it has tumbled all the way to Rs 270 and that's in a market which has been flat more or less. So Adani Enterprises remains a short sell and the chances are that we will see it tumbling down below Rs 200.
Q: Reliance Capital has been consistently on your sell list. Do you think Friday's poor performance is signifying more weakness this week?
A: Yes, it is signifying more weakness. On Friday it made new lows for this decline since the February 7 or 10 decline started. Reliance Capital made new lows on Friday, Nifty has not done that fortunately. This is not good news. Reliance Capital in any case what we saw earlier was a bear market rally. These rallies come which is what happened with Reliance Capital. The primary trend in Reliance Capital is down. It is in a bear market still. So I am assuming that it will eventually reach Rs 300, maybe even crack that on the downside.
Q: Let's talk about some buys on your list for a change. How you would approach Cipla for the day?
A: Cipla seems to have gone through a deep correction which has come to an end. What's happening really is that because of these narrow range days there are very little trading opportunities coming out. The opportunities that are coming are primarily on the downside which means on the sell side.
Cipla is one of the few stocks that seemed appropriate for a long position and pharma sometimes does the exact opposite of what the market does. So I think there is more upside in Cipla. It's done a V-shape reversal from Rs 280-285 support level. The chances are that it can go and test its Rs 350 level again. So that gives us very decent percentage point gain here.
Q: You would be bullish on Hindustan Petroleum as well today?
A: Yes. Hindustan Petroleum has made a small double-bottom and it's on the verge of a breakout from that double-bottom. The levels which it needs to takeout is around Rs 300. If it does that then we are really looking at atleast Rs 20 rise, a target of Rs 320-325 which is where some resistance will come in.
We are looking at modest targets on all these stocks, but HPCL is a buying opportunity on the back of news and well supported by good charts. It should move up.
Q: You have a call on JSPL as well. It comes out with its numbers on Friday, but how would you trade it today?
A: After a very big decline there was a very small rally in JSPL which now appears to have been a bear flag. A bear flag comes midpoint in a decline. That tells us that JSPL can go all the way to Rs 400. It's a very dismal chart. Something is going on there. Some news, of course we all understand. The market is probably smarter. This is a sell on every opportunity.
Q: Would you initiate any trades long or short or after the experience of last week it's best to stay away?
A: Actually the experience of last week was horrifying and I suspect it was rather bad for most traders. It's best to stay away, but day traders and short-term traders like us have to take a view because sometimes a big trend starts from the small moves.
So my view for the day so far is that there is a mildly bearish bias and I am assuming that the Nifty will drift down. So on any rally I will look to sell some quantity on the short side. It's important to manage your quantities. If the volumes are very low then these periods will also pass by.
Q: Reliance will be on the watch list this morning, any trends that you can spot on the technicals there?
A: Yes, to me Reliance is likely to crack below Rs 700 and go lower. There are so many other issues in Reliance, but on the charts that's what the trend is. It's very clear for me.
Q: Friday, the infrastructure stocks were quite weak. JP Associates has been bit of an outperformer over the last couple of months. What are the technicals looking like?
A: The technicals have finally caught up with whatever JP Associates is doing. Technicals suggest that the uptrend is over. A large distribution pattern, a bearish head and shoulder pattern is on the verge of getting confirmed.
So JP is a sell now. Whether it goes down today or not, the broad view now is that it's going to see downside pressure and go lower.
Q: What about IDFC which you have been saying is a weak looking chart?
A: It's the weakest of the lot. It hardly rallies. Every rally in IDFC should be sold into. Again here the same theme applies, it's probably likely to go and make new lows for this downtrend.
Q: What did you make of Mahindra & Mahindra's pullback on Friday, because that's also has been an underperforming stock for the last many weeks.
A: It was remarkable. One day is not enough. While M&M is a buy, that pullback also took it out of a trading range and then pushed it on the upside. The charts were not supporting it, so such big moves on the upside needs some follow through.
So if M&M continues to see gains today, tomorrow then I would say it has become a perfect buying opportunity, but we have to wait for that.
Q: We have been discussing Idea since last week and it's been quite volatile. Can you get a sense of how to trade it now?
A: Idea remains a trade on the short side, although I would not take it because Friday's price action suggested that maybe a short-term low is coming in place. We don't know that, but it's possible.
So while the trend is down the trade if at all needs to be taken on the short side. It's probably better not to take it till either lows are broken again in which case go short or maybe a short rally could begin. That rally then needs to be sold into.
Q: What did you make of the slip in REC on Friday?
A: Again it is a big disappointment. REC and PFC both suggested that maybe their downtrends are over and they are moving up, but that has not worked out.
It is very difficult to trade in this kind of an environment where 5 point, 10 point moves are now becoming the trend.
But REC is now a sell. Probably it needs to show some more weakness before that actual trade can be taken, but the view should be on the downside.
A: Yes, Renuka has been weak throughout. At least for Balrampur we saw a very good rally, Bajaj was slightly better, but Renuka's rally could be counted in a few days. That rally is over and Renuka suggests that a new decline to new lows is likely.
Very difficult to say what's happening in sugar, again the view was that it could be a correction but this decline is not a correction. Renuka is probably in a bear market now.
A: While Infosys has already cracked, TCS is on the verge of a very strong support level, so anything below it will put it at par with that big decline in Infosys. IT index itself is not very comforting.
What has happened is because HCL Tech and Wipro has been slightly outperforming the index itself is not as dismal in terms of chart as Infosys and TCS are. I don't see TCS holding its Rs 1,050 support levels. It's only am matter of time, if not today then tomorrow. So the two IT majors are certainly selling opportunities. The IT index itself is probably on avoid.
Q: Do you have any sense of which way the breakout of this narrow 190 point range could be or do you think it's a bit of a gamble and there is no way of technically predicting it?
A: There is no way of technically predicting it. One lesson that I have learned and we all miss it out is that don't trade when the markets are giving you a visible narrow trading range because there is no money inside it. But we still sometimes do trade. The right way is now the range is so narrow that we all know the levels, 5400-5200 broadly.
So the best trades will come when it breaks up or down. There is no way inside this trading range because we have these alternate bouts of optimism pessimism. One day we see okay, this is good. The next day we all know it opens with a downside gap, suddenly things become terrible. So it's wise to wait for the breakouts.
Disclosure: I have no personal holding in the stocks discussed.