'5200 strong support for mkt, next resistance at 5500-5550'

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'5200 strong support for mkt, next resistance at 5500-5550'

Having crossed strong resistance of 5400 comfortably, the Nifty is indicating towards an incline to higher levels, says JM Financial Tech's Gautam Shah. In an exclusive interview to CNBC-TV18, Shah attributed the rally to a lot of short covering and warned of a fall around 5,500-5550 levels, "but 5200 remains a strong support."

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Having crossed strong resistance of 5,400 comfortably, the Nifty is indicating towards an incline to higher levels, says JM Financial Tech's CMT Gautam Shah.

In an exclusive interview to CNBC-TV18, Shah attributed the rally to a lot of short covering and warned of a fall around 5,500-5,550 levels,  " but 5,200 remains a  strong support ."

Speaking on crude, which has been gaining momentum, Shah said the commodity is depicting a bullish pattern on the  charts.

Below is the edited transcript of Shah's interview with CNBC-TV18. Also watch the accompanying videos.

Q: Have you changed your view to an outright bullish one now after the 20% rally?

A: The last time we pointed out that how this upmove was very different to what we saw in 2011 because even in 2011, a couple of times you did see the markets pull back 20% from the recent low. What happen in that diwali period wherein the Nifty moved from 4,700 to 5,400. But, this move was looking very different and we had explained that. The markets have made a complete mockery of resistance levels by taking them out one after another.

This is because once the 5,000-5,050 was surpassed on a closing basis there was enough indication on the chart that this is a market that is wanting to change its sequence and by sequence meaning making higher tops and higher bottoms. Because the whole of last year we were a diehard bear and the markets keep making lower tops and lower bottoms. By moving pass 5,100 and then with added confirmation above 5,400 a couple of days back the market is telling that it wants to go way higher.

The way it has behaved around resistance levels is actually quite important. This is because the whole of last year, whenever the markets got to important supply points it lost momentum and it started to correct. But here the market is just consolidating around resistance levels. A good example is what happened a couple of days back is around 5,400 because 5,400 is the last major top and even based on studies it was an important barrier.

Market gave it importance only for a few trading sessions by just staying below it for couple of days and then took out in style yesterday in the second half. No level is really important at this point of time. Also, the fact that there is frantic short covering taking place every time a particular level is been taken out and lot of people are still on the sidelines, is not allowing the market to go to much lower.

Our view is positive, but at the same time we believe that around 5,500-5,550 the market could see a halt because that is a point wherein you have resistance levels kicking in once again. At the same time, till the market does not break 5,200 which is the updated support there is reason to believe that going forward, the markets will continue to make higher tops and higher bottoms.

Q: If the market can pierce that 5,500 resistance on the medium-term charts what kind of targets look doable on the Nifty?

A: I wouldn't like to walk that path because after having rallied about 900 to 1,000 points, it is very easy to give levels on the upside. But what we are seeing and what we have been advising our clients is, to stay with some of the sectors, some of the stocks in the market. This is because while the Nifty has moved up 15-20%, you have stocks moving up 40-50-60% in the last 2-2.5 weeks.

Therefore, while the Nifty itself might now get into a period of consolidation having rallied so much and because the Nifty is still overbought, around 5,500-5,550 you could see some problem. In case even that level is surpassed, the best case for now with what we are working with is about 5,700 on the Nifty and about 19,000 on the Sensex. Many stocks and sectors will continue to do well.

One should not get bogged down with what the Nifty levels are because I do know a lot of people who missed the rally in the month of January and are wanting to enter at these levels. When you look at the screen and when you look at the fact that the market has moved up so much, it does not allow you to enter. So, stick to stocks, do not give too much importance to the Nifty. It could see another 5%, but at the same time any and every decline is a buying opportunity.