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Aug 23, 2011, 06.50 PM IST | Source: CNBC-TV18

Play the market bounce but wear your guards: Atul Suri

Caught in a fresh global storm, Indian markets in the past week have seen colossal sell-offs. And, going forward things could get bad before they finally get better, says Atul Suri, trader at Rare Enterprises.

In an attempt to help investors learn how to invest smartly and reap the benefits, "The all new Investor Camp" presented by CNBC-TV18 and Trustline with Udayan Mukherjee talk to Atul Suri, trader at Rare Enterprises about the risks and the returns in various types of schemes as well as answer all stock queries posed by investors

Caught in a fresh global storm, Indian markets in the past week have seen colossal sell-offs. And, going forward things could get bad before they finally get better, Suri says. He believes the oversold market has room for opportunities for both investors and traders. "One can use the rallies intelligently to do what their personal strategy is but should always limit their losses," says Suri .

He believes the 4,600-4,650 levels at the Nifty should be good. With the ongoing global volatility he also says the next possible support is seen at 4,100 levels.

Below is an edited transcript of Atul Suriís interview on CNBC-TV18ís special show, Investor Camp. Also watch the accompanying video.

Q: How bad can the market get from here?

A: With Nifty being around 4,800-4,900 levels there is a good support at around 4,650 levels. If you look at the bull run in 2009, post election the market went up to around 4,693. Everyone was expecting a Third Front Government, and that Mayawati will become the PM and the markets will crash. However, you had a circuit up in the market and people woke up to the possibility of a bull market, it went up and you saw it come down to about 4,600-4,650 levels almost 1,2,3 times before it again took off and went to parabolic move to 6,300.

The 4,600-4,650 levels have been a big support for a year, year and half post election. Hence, whenever a leverage has been tested many times on such long timeframes, it traditionally tends to be very good levels. I think the 4,600-4,650 levels should be good. These are very violent times and markets are moving from 5% losses in a day to 10% in a week. The charts of developed markets are not very good hence I wouldnít limit us to 4,650. If 4,650 level is violated then the next support is at 4,100.

Things could get bad before they get better. Oversold markets give you opportunities, very sharp spikes and investors can use this opportunities. If you are a trader there is an opportunity that you can play these bounces but play them with risk control because markets are moving fast and global scenario is not good. Use the rallies intelligently to do what your personal strategy is but always limit your losses.

Q: Post the election day, the big rally took off and as a result Nifty was at 3,700. We had a 650 point gap going to 4350 and some of your peers were saying that we will go back and fill that gap technically, is that a probability?

A: When the market closes at a level and the next day it opens substantially higher, it never touches that level and then moves on like a gap, it is like a window in a wall and an unfulfilled part. Hence, the markets retrace and they always tend to fill these gaps and comeback into the region where the gap has been created. This theory is the Gap theory.

However, the gap theory has different kinds of gaps called breakout gaps. Breakout is a forceful thing which is like an election day; the break price moves with breakouts and breakout gaps donít get fulfilled. Continuation gaps get filled after the market is rallying on certain good days and it retraces and again goes back but breakout gaps do not get filled. Hence, this is a breakout gaps so we may not go to those levels but things are volatile and each one has to hold out for himself.

This is not just about market but also about the trade, and it is about tectonic shifts that are happening in assets classes, gold and in currency. Countries are changing and getting altered on the economic map of the world and hence, these are a little careful times.

Q: How is the structure for gold looking like?

A: The lessons I have learned from the IT bull run was never to fight the trend and never limit. People come up and ask till what level will gold go ó will it go to USD 2000 per ounce or USD 3000 per ounce? Whenever an asset class is at a lifetime high, there is no limit that you can place on the upside. However, the fact is none of us had tools whether fundamental or technical to be able to project how far things go. You cannot project panic greed, fears and gold is a perfect symbol of global fear. We donít know how much global fear exists.

Gold at new highs moving says a lot more than there is and obviously, it is also a great trading opportunity. The best trades in the world are things at life time high because everybody who has it is a winner. Everybody who has gold is making money; there is nobody who is losing money having bought gold. So, when there are all winners there is not limit to an upside.

The problem is something like a real estate stock, whereas no one is desperate seller when it comes to gold, everybody is a greedy buyer. So, things at lifetime highs are always the best trades. Great traders like Ed Seykota only buys stocks at lifetime highs and there are lot of phases where he is not into any activity but he knows that when stocks and assets classed touch life time highs, you have the biggest moves and biggest opportunities of your life and gold is one of them.

Q: A question which lot of investors would want answers to blue chips like Reliance , SBI for 12-18 months has made no money for them, and they must all be wondering what to do with these kinds of stocks. Do you see the possibility of more wealth destruction in some of these core holdings which touch lakhs of investors?

A: There is no guarantee and no written law that Reliance has to make money for you year on year. If you look at Western markets, you find lots of blue chips have gone on to being eliminated from indices and gone into the ground. This will happen with Reliance. The only fear or problem that I have is because of the weightage these stocks have on Nifty.

Reliance is not just a stock itís not just the largest weightage on the index but also a sentiment driver. Today banking stocks are the lead indicator. If you look at bank Nifty, it always has breakouts or least breakouts compared to the Nifty, hence,  so when the big boys or when the blue-chips or when the largest sectors as they are today behave the way they are it is worrisome and that is what you are seeing in the market right now.

Q: How would you advice people to approach trading now?

A: For a trader it is a fantastic market. If you are a trader there is nothing better than a bear market. I love bear markets for two things ó ego issue and sadistic pleasure. The stop loss is a religion for me, however good a company is, if my price violates. If one does not exit loss, he cannot trade in the bear market. The bear market is a great equalizer, it is an opportunity to out perform vis-ŗ-vis everybody else. I love bear markets because I can short with equal ease as I go long and I love it even more so when I am the only person short in the room.
 
For a trader to really participate in these bear markets, the important thing is first and foremost to limit your losses. You have to able to exit your longs if you are a trader. If you are a trader live by the rules of trading and if you an investor live by the rules of investment and they are two different rules.

People think they are nothing but Warren Buffet and everyone is trying to play momentum. So if you are playing momentum remember live by the rules of momentum, which is to limit your losses. If you do not do that you are actually driving a car without brakes. The ability to participate in bear markets is not really there in India.

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