Don't see sustainable move above 5200-5300 level: CLSA

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In an interview with CNBC-TV18, Laurence Balanco, Asian Technical Research at CLSA, spoke about his outlook for the markets.

Below is a verbatim transcript of an exclusive interview with Laurence Balanco on CNBC-TV18. Also watch the accompanying video.

Q: We have been stuck in a range and a very tight one for ever. What does it seem like the market is priming towards?

A: What we have seen is obviously a low momentum and low volumes from the recovery of February lows. All that looks like a topping. We still think the risk is to the downside for the markets here. So we don't see a sustainable move above 5,200-5,300 level with that resistance level remaining intact, the risk retesting 4,000 and a potential break below that key support level.

Q: To speak globally as well, we have been remarkably low on volatility these last couple of weeks. Are you expecting a spike in volatility any time soon?

A: There is an interesting study we did recently. If you look at sentiments, we looked at the American individual investor's bearish sentiment reading and in the States that is coming out at 26% bears. So there are a very few bears on that poll. If you look at the VIX Index, it is now below 20. Historically levels below 20 have shown a level of complacency. We have seen VIX below 20 and sentiment below 26% (the combination of the two indicators) on three occasions since the 2007 peak. When you have this confluence of events, you will typically see a correction of next four weeks of 5%. So we think the sustainability of S&P above 1,150 is questionable at this point in time.

The other point looking at US markets is Russell 2000, (which) made new highs and so is the Nasdaq. But if we look at the Dow Industrials that has failed to make new highs, from a Dow Theory point of view, you have got a non confirmation from recent highs. So there are lot of dislocations going on from technical side for making the environment very uncertain and the risk will force further corrective actions rather than a sustained move to the upside here.