Nifty sees risk of downside post rollover: K&A Sec

Q: Have you studied what Ashok Leyland is trying to tell you in terms of trading patterns?

A: Ashok Leyland has produced what technically you would say is an ABC type of move, not the sort of pattern which will likely expand into a very large investable trend over several months for now. Given that yesterday's close made a sort of break out, it's possible the stock could go to Rs 52, maybe at most Rs 55. But I think whether it goes to Rs 52 or Rs 55, as an investor, one will possibly get a chance to buy this into Rs 35 to Rs 30 area back again over the course of the next month or so.

Q: Would you go long on IT in the next series?

A: IT has a tradable intermediate rally on the large names with a 10 -15% upside possibly in most of these names. But in terms of taking a 2-4 months view, where we have kind gone wrong couple of times in the past, it looks like the final bottom may not have been made.

Post this 10-15-18% rally on some names, the recent lows that we saw might be challenged again by a 5-7% low and further lower. Maybe thereafter there will be a very sustainable up-trend emerging back in these stocks.

Q: What about Deccan Aviation which is been a spectacular performer in the last couple of days?

A: If I try to imagine any fundamental factors to justify the inclusion of Deccan Aviation in my portfolio, I miserably fail at that. I think the kind of gorgeous operating leverages this firm has, it operates at the lowest end of the margin spectrum, it has an unbelievable financial leverage building up, the losses are continuously eating away into equity funding which is all coming through debt. On top of that, you have this gorgeous operating leverage, a very high financial leverage, not really major prospects going ahead except that some magic will be done by the Kingfisher alliance.

Keeping the fundamentals aside, if this has been a big great punt for now, one could simplify this to idea that if I'm holding Deccan Aviation now, I can't hope to have a stop loss of less than Rs150 area maybe. If I'm looking to get in afresh into this trend, maybe a pull back to Rs 150 can come where one can take it. It doesn't seem that it has topped out as yet, but at the immediate moment, to get in or to hold has an inferior reward to risk ratio. But on a pullback maybe, when one gets in, the stock could easily go back and flair to Rs 270 also.

Though I don't have any fundamental rational on which I can justify this and ask an investor to go and take this, it's a pure punting stock and on the punting time frame, these are the two numbers by which one would try to recommend building a trade.   

Q: What are the signals you get now from the Dow, Nasdaq and the key Asian indices. Do you expect volatility to ease off a little bit?

A: There is a very interesting picture developing up in most of the global markets inter-relationships. There has been a lot of brouhaha last week about of how S&P futures broke past the August lows. On an intra-day basis they haven't yet broken the August lows.

In the last 20 days, S&P futures have not produced a two day rally, any rise have been just a one day affair, no consecutive two day rises. In about the last 20 years it has happened about 11 times. Each of the time such a pattern comes, it's not your conventional technical analysis pattern where you see a picture of a head and shoulder, or a mountain, or a river, but it's a statistical pattern whereby, last 20 years, whenever it has happened 11 times each, each and every time it has been followed with a major reversal.

Looking at this and several other parameters, on one hand on S&P it seems, it's probably going to go back again and test it's last 12 months highs back again at 1,580 before it breaks 1,380. At the same hand, the way we have been trying to look at the one to one co-relation between Asian markets and the developed markets led by S&P, over the next week you might find serious rally developing back into S&P while the Asian markets might take a quick sharp deep cut over the 4-5 days of trading.

But, assimilating all of this together, say maybe as has been an expectation pinned around Santa Claus rally, since too many people are aware of it and since too many changes are happening in key markets, we might see the Santa Claus rally coming in the US way before Santa Claus comes. And by the time he comes, there might be a deep correction developing back from all times high and maybe going to cut into very deep territories lower and while the Asian markets might be going up.

So I think it's best to keep those aside and focus on our markets at this moment. The short-term co-relations seem to be going haywire at this point and possibly it's better to not draw too much from there.

Q: You were talking about some pharmaceuticals stocks which might be showing some bottoming out patterns. Which specifically are those?

A: Pfizer, Cipla, Dr Reddy's Aurobindo Pharma, Lupin labs, Aventis, these 6-7 stocks from the relatively heavier pharma names all seem to be having gone through fairly deep undulating corrections over the last 15 - 18 months.

The technical patterns at least on them dictate me to go out and say that, even if you don't find a fundamental trigger here or you have some concerns keep them aside for a while. On an investment time frame, with a 5 to 10% downside risk at most, you have between 35 - 50% upside coming in these stocks over the next 12 months.

I think within sector rotations, pharma led by these stocks is probably building up to take on some leadership going forward in the next few months.