Despite the fact that the market is struggling, Sudarshan Sukhani of s2analytics.com believes the short term trend in the market remains upwards. "The 50 day moving average will not act as resistance, so once the market decides to move up, it will go up," he said.
In this scenario, his call is to go long or buy on dips. "I plan to take fresh longs today if market gives an opportunity," he explained.
However, he advises traders to be cautious with their volumes since the market has just come out of a trading range. “If you don’t manage your volumes inside the trading range, then traders are slaughtered,” he said.
He goes on to say profits should be booked before the Nifty hits 5400.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: It looked like the market was struggling to get to that 50 day moving average (DMA) target. Is that what is happening technically when you look at the Nifty's charts?
A: It is not just the 50 DMA, the market is struggling to move up. I think broadly we can take that view. It did do some good things day before yesterday, but yesterday the price action was disappointing. We broke out with a gap, but that gap should have been more or less maintained for a strong momentum sign for market and that didn’t happen. The market sometimes can move randomly or move differently.
So the short-term trend, I assume, is still up because the moving average will not act as resistance. Once the market decides to move up, it will go up. What we want to see is whether there are enough participants on the long side.
As of now, the view is that we should remain long or buy on dips. I close my positions almost at the lows yesterday when the market was closing, so I plan to take fresh longs today if market gives an opportunity.
Q: Exide slipped off yesterday. Is the stock headed lower?
A: I think it is headed lower. Exide was one of those stocks which had completed its correction and was now resuming its uptrend. That uptrend, however, faced a lot of resistance at Rs 130-140 levels, so it hasn’t worked out.
Now we are seeing a resumed move on the downside. This downside could be a much bigger down move than we imagine. It has broken down from the support at Rs 135 then Rs 130, so we are looking at lower levels in Exide. It is a reasonable sell at this point of time.
Q: You think IVRCL is also topped off this moment?
A: Yes IVRCL has topped out. It is a riskier call as compared to Exide because Exide has turned over given a lot of distribution signals and then broken down. IVRCL has not yet done that, but the way it rallied and then fell in the last three-four days tells us that at least the intermediate top is in place.
So now it could distribute, it could go in a consolidation, it could spend some time but an intermediate top is in place then it is not going to stop here. The chances are it will go much lower till it finds support, which will come in significantly lower for IVRCL.
Q: We were discussing Idea yesterday and it lost even more ground. You would continue to sell that stock?
A: Yes, with a lot of regret because a lot of these stocks gave signs that they are going up, moving higher and then suddenly they have been facing a lot of headwinds on the price charts. Idea is now a sell, it is not necessarily in a downtrend, but for short-term traders even a deep correction represents a selling opportunity and chance to make money.
Yesterday we saw a very big crack in Idea, after which you want to see some kind of bounce before you go and sell. That bounce should come probably today and that would be a point when short positions should be taken.
Q: Blue-chip from the banking space today, HDFC Bank?
A: Yes, the new high should be bought. The only problem with HDFC Bank is that it is a relatively low beta play, but in a market that is doing nothing, it is better to have something on our plus side. HDFC Bank’s move yesterday suggested that inch-by-inch it is going to move higher. So I am not sure if this is a pure day trading play.
If you have an opportunity, go long in it. If there is a big move today, take profits otherwise wait patiently and it should reward traders if you are prepared to wait for a few days.
Q: You were telling me about Sun Pharma yesterday. Is it a good looking chart?
A: It is an excellent chart and these new highs have to be bought. The market is saying, I am willing to pay a higher price for this stock and we have to listen to that message.
Sun Pharma made a new high yesterday; it repeatedly makes these new highs after which it sometimes consolidates, but that is okay because it leads to higher price levels. Sun Pharma is looking for at least Rs 650-700 and that is a good 10% from the current levels. We could see follow-through today so traders should be watching it carefully.
Q: Tata Power also on your buy list today?
A: Yes, but it is not in the same grade as HDFC Bank or Sun Pharma, in a sense it is not making new highs. Tata Power came through a very deep correction, so to that extent the trader is buying in anticipation of a sustained upmove. So there is much more headroom here, more percentage gains are possible.
Tata Power has made a bullish head and shoulder and broken out of it on the upside. That is good news because the reversal pattern tells us that a sustained upmove is likely. Now you can have down days, you can have consolidation, but Tata Power is a stock that is going to remain on my long-only list for sometime. Yesterday it broke out, today that breakout can see further gains. Tata Power should be bought into, people should also look at May options for Tata Power on the long side buy calls and take a bullish stance.
Q: If we do start 15-20 points higher, which is the mild positive bias, will you add some positions and see if the Nifty is making that journey to 5,400? Also, would you trade light quantities right now given that we are still within a range and the outlook is not quite certain?
A: The light quantities question is well-asked, you have to trade light quantities. All we have done is come out of a 100 point range, so we need to be long. But if you don’t manage your volumes inside the trading range, then traders like me are slaughtered. The only reason we survive is we manage volume very well.
I will be adding to long positions. Something is going on in the bank Nifty which is that it has broken out of a resistance zone about 10,500 and made a very narrow range yesterday. So the focus today should be on bank Nifty. Of course the Nifty will follow the banks which are likely to lead today.
Q: India Cements has probably been the biggest underperformer amongst the cement space. Technically how would you approach it?
A: I would sell it. Now there is a caveat because I heard you say that two cement companies are reporting today. So clearly there is going to be some volatility, but for India Cement if there is volatility on the upside, which means if you see sharp spikes on the upside, that is an opportunity to take advantage and go short because it is a very weak chart.
Q: From the same space, Gujarat Ambuja?
A: It is reporting today, but assuming it were not reporting, then at Rs 155-156 Gujarat Ambuja has made a double bottom and rallied from there. That suggests a target of Rs 180-185 is possible.
Now what the impact of results will be I cannot say, but just on the charts, ignoring the results, it is a buying opportunity because it also has a tight stop loss and it can go to the upper end of its range.
Q: What about Ashok Leyland and what have you made of that chart?
A: It was a terrible chart till the last three-four days because it was falling and then going in a narrow range and doing all sorts of volatile stuff intraday. Yesterday it did well, it rallied because it has stopped at a support level and because there is a buying opportunity here.
The point is that we don’t have to buy every stock that we examine on charts and Ashok Leyland is not a high quality buy. Purely on chart action, if somebody wants to go in it, you should be looking to buy.
Q: What about LIC Housing, we have not spoken about this for a few weeks?
A: Yesterday it made a big decline, but LIC Housing is in a trading range. It has been an outperformer, it has moved 30% up while the broad market is struggling, so we have to accept these minor declines on a day-to-day basis. These declines don’t affect the long-term trend which is up, so after a big decline yesterday I am anticipating the banks to do something interesting today.
LIC Housing becomes a perfect buy-on-dips opportunity for the day. Have a tight stop loss of Rs 253-252 and go long because yesterday’s dip gives you a well located price.
Q: How about VIP?
A: VIP is making an attractive consolidation pattern which is also a reversal of the correction that it went through. It is a buying opportunity, but not an investment grade stock and a trader should look to go long in it because there is 10-15% upside from here.
Q: Would you still buy GVK or it is not prudent to chase the price?
A: No, it is prudent because it made a big move. But it is not the only stock, Tata Power also made a similar move, so there is something going on in the sector itself. GVK Power is being supported by the tailwinds on the sector. The targets for the move that broke out yesterday is about Rs 20.5, so there is more headroom.
Now you don’t have to buy it on the open today. Always when big moves are made, traders who have patience make lot of money. So you have to wait patiently till it corrects which is when it is worth taking a long position there.
Q: Have we taken a look at the rupee-dollar chart off late because the rupee is again dangerously close to 52 mark after many weeks?
A: Yes, the rupee is heading towards 54-55. That path is not going to be as simple as sometimes it is for stocks or commodities because there are many other factors affecting the foreign currency market, but the trend is very clear. So any dip in the dollar value is a buying opportunity.
Q: What is a clean shot from the commodities market?
A: Silver, because it is on the verge of a breakdown.
Q: What kind of targets?
A: I don’t want to spoil everybody’s day but I think we should breach Rs 50,000 per kg.
Q: Any sense of where you would take profits if you open a small long trade at 5,320 and would you just scalp 40-50 points if you get it or is it a quasi positional trade that you are talking about?
A: It is not a positional trade because we have a very strong barrier at 5,400. The Nifty needs to cross that for us to become upbeat and bullish, but it has to move that 80 points to reach 5,400. So the idea is to take profits before 5,400 because there is no sense in waiting to find out if it crosses that. That depends on how much earlier we get out but it should be prior to 5,400 so it is a very small trade.