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Feb 19, 2013 02:56 PM IST | Source: CNBC-TV18

Market in trend reversal; Nifty may fall to 5500: Jai Bala

Jai Bala, says market dropped around 250 points from the end of January. The time it took the market to slip was half the time it took to go up as many points, which tells us the path of resistance is lower, he adds

Technical expert, Jai Bala, thinks market is in a trend reversal. If it is a trend reversal then Nifty is likely to decline to about 5,500 on or before March 7, he adds

He also feels that market is still within the grasp of bulls. Commenting on Bank Nifty, he says it seems Bank Nifty has already put in a top.

Also read: Brokerage calls: 4 bumper stocks for you to buy today

Below is the verbatim transcript of his interview on CNBC-TV18

Q: How is the market looking technically?

A: In my last interview on January 29, I had asked viewers to fade the market’s move above 6,100 and go short on the market. That suggestion actually proved quite fruitful. The market has dropped 250 points from those highs. The most important takeaway from that 250 points drop is that the market covered that 250 points drop in half the time it took for the markets to go up that many points.

The market is telling us is that the ease of movement being on the downside, the path of least resistance is lower. So, does it mean the bears rested their position from the bulls? I don’t thinks so. Market is still within the grasp of the bulls.

However at this point we need to understand the global market position. There are a couple of important signs that are coming from the currency markets. The euro went to 1.3710; there was an editorial in a very popular financial portal, which said ‘euro is the rock star of currencies’. Couple of days following that, a survey showed that 93 percent of the currency traders were bullish on the euro. Earlier, when the markets have been this bullish and traders have been so excessively bullish, in the last three years, in three occurrences euro has declined somewhere between 19-23 percent.

There is also correlated information coming from the sterling market. The pound sterling has actually broken out of a four year triangle and it is telling us that it is very likely to dip to somewhere about 13-25 percent from the current levels over the next 12-24 months.

So, with currency markets saying that euro is likely to weaken, pound sterling is likely to weaken and yen is anyway weakening, the probability that the dollar index is actually going to be the rock star in currencies is quite high. However, this is not very good news for risk assets.

Looking at equity markets, if you look at the Dow against the Emerging Markets Exchange-Traded Fund (ETF), every time the Emerging Markets ETF has diverged from the movements of the Dow, it has always presaged a sizeable decline in the global markets. That is happening right now and my charts show the occurrences of those divergences. This shows that the market is quite precariously poised.

However, can the markets continue to rally, can it go all the way up? Yes, it definitely can but it looks like somebody has to do a Houdini or a Mandrake at this point in time.

Q: Do you see a lot of downside over the next few weeks or another attempt at a pullback on the Nifty around the Budget before any kind of resumption of the downside?

A: If this is a trend reversal, which I think it is, the market is very likely to decline to about 5,500 on or before March 7. But if it is not a trend reversal, then this market has probably already marked a bottom. However, I think those probabilities are little lower.

Although what is likely to happen in the extreme short-term is that this market could come close to 6,000 ballpark and then start a sharper decline in the next couple of weeks.

Q: You have got a strategy on HCL Tech. Do you like that stock technically?

A: If you look at the move of the stock from the July lows to the January highs, technically it says that there is one more leg on the upside pending for the stock. The decline from the January highs to Rs 750 looks like a perfect correction.

It is better to buy this stock closer to Rs 670-675 and expect the stock to hit about Rs 750 in the short-term.

Q: What kind of call are you taking on the Bank Nifty going into the Budget, any specific trading position there?

A: I think the Bank Nifty has put in a top already and that is precisely the reason we have been short on State Bank of India (SBI) on 29th of January itself. We have seen 11 percent decline in SBI from that point.

I think the Bank Nifty is heading towards 11,700 in the short to medium-term, but you could see spurts of retracement in the extreme short-term.

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