Beware of the 'sucker's rally', says Anil Manghnani

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Beware of the 'sucker's rally', says Anil Manghnani

In an interview with CNBC-TV18, Anil Manghnani of Modern Shares & Stock Brokers, spoke about his reading of the market and the road ahead.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Anil Manghnani See what other Experts & Brokerages are saying about Rel Capital See messages about Rel Capital Rel Capital BSE | NSE 29/05/12 Are Mutual Funds betting on Rel Capital? Other Stocks in this news Hindalco Industries | Tata Steel | Mcleod Russel (India) | Jayshree Tea and Industries |

In an interview with CNBC-TV18, Anil Manghnani of Modern Shares & Stock Brokers, spoke about his reading of the market and the road ahead.

Below is a verbatim transcript of the interview. Also watch the video.

Q: What should the takeaway be from this week for someone who is trading the index?

A: Tough to say but maybe a period of consolidation. We really haven't done anything this week - maybe the volatility has reduced. That's not a bad thing. People were getting scared with the way you had intraday swings of 300 points on the Sensex or 100-150 points on the Nifty. That has stopped, which maybe a positive. On the negative side, the volumes have completely dropped, which shows a bit of lack of interest, but maybe range bound between 5,400 and 5,600 is not a bad thing given the volatility we had over the last two months. So probably that's the only takeaway -a reduction in volatility and sort of calmness in the market. No overreaction also, a 200 point down today the SGX is suggesting 40 points. So it suggests that maybe we are out of the volatility period and we are sort of calming down. My gut feeling is as long as we don't break 5,375, we still have very possibility of retesting those moving average placed at 5,600-5,650. So that is still a possibility maybe going into next week.

Q: You got a sell call on stock, which was so hot yesterday, Reliance Capital ?

A: The market has been such. It's been a market where if something doesn't move then it plays catch up and if something does move you see a sell off. I guess last week when I gave a sell call on Tata Motors and Maruti because the whole auto index had moved post the budget and I think they reached major targets. That is the reason. So a similar set of move in Reliance Capital. The stock has moved from Rs 388 all the way to Rs 520-530 range. So anybody who has bought lower would come to sell now since it is a trading market and the reason for giving a call is the 50 days average has crossed below the 200. So these are more sort of pullback rally.

So every time it comes to the 50 day it should find resistance which is about Rs 537-538. So this range between Rs 530-550 is a selling range for me. I think the stock should go back to about Rs 480-460 range.

Q: If you do get a start, say around 5,450 thereabouts, do you buy once to play for another 150 point pullback or is that a risky trade so close to 5,400?

A: The closer you are to 5,400 then your stop loss is well defined. So it might not be that much of a risk. I still believe, given that the volatility are, so low and the volumes also so low, it will be very difficult for the market just to collapse between 5,375. You need a lot more interest in the market to get that deep cut. So I think there is still another chance that we rally back to the 5,600-5,650 mark sometime next week. Get a lot more people in before again then the risk of another - I wouldn't say sharp sell off but another profit booking rally could come in.

Right now just given the way that the market has traded all week with absolutely no interest than lacklustre volumes, it doesn't suggest a collapse today or even anytime soon. So I am still suggesting that you buy anywhere closer to 5,400 with a stop at 5,375 and play for one more move back to 5,600-5,650. Maybe it's a possibility that we even cross the 200 day moving average where - I hate to say that on TV - but it could be a "sucker's rally" and people get convinced that now that we are above 200 DMA, so now it's a time to buy and then the market starts its last leg down.

So that is also possible. But to answer your question, I don't mind buying if you get a gap down of 50-60 points. Your stop loss is so well-defined and then play into next week for a long trade.

I looked at the Dow and the Nasdaq and the S&P also this morning, at least the Dow and the S&P have both close right at their 50 day average. So maybe they will take some support, maybe flattish or even a slightly positive day in the US markets is possible. That would give some sort of hope going into next week. So I think if you get a gap down or even suppose we get a bad number on the IIP - we have seen that post the bad number if the market reacts on the downside it tends to bounce back after that - so that might be a catalyst for a bounce also. So keep that in mind and somewhere mid day might not be a bad trade to go long.

Q: What about metals? That's a space, which has been looking slightly wobbly, globally commodity prices too. How would you approach names like Hindalco or even Tata Steel ?

A: I glad you brought up that point because today is a sell call on Hindalco was not so much just on the technical chart of Hindalco but its more a call on what I saw on the copper chart. After a long time copper which has been the lead - crude has only come into the picture in the last 15-20 day because of the Middle East crises - but copper has been the main metal that has been rallying into the last year and into the first month of this year. That has made a lower top sometime last month and now is decisively broken its 50 day average. That's the first time is decisively closed below since July of last year.

So with that happening it's going to flow into some of the other commodities. I think the commodity stocks per se would now find it difficult to rally. Hindalco could head back to Rs 190 even worse case scenario Rs 176. Sterlite hasn't done much in the last year because of the whole deal with Cairn and Vedanta. So maybe up to Rs 150 is the major support, I don't see it breaking that easily. The one that is weak is probably JSW steel. That can head back to Rs 890 first and then Rs 860 range. That's weak but one which everybody follows is Tata Steel. That's seems to get hit every time the market has a small correction, Rs 584-580 range is where it keeps bouncing off because that's a 200 day average. If it breaks Rs 580 then you could have serious problems for Tata Steel.

Q: Any thoughts on the big star lately from the midcaps, the tea space, something like Mcleod Russel (India) has rallied 15-17% in the last few days?

A: Yes, it has given a trading breakout. It's taken out a long-term trendline which is positive for the stock. The key resistance zone is at Rs 255-265. I know it's very close to that but at least from a trading perspective every time you get a dip of 5-7% also it would be a good buy for a trading bounce, momentum on the chart. The other one probably Jayshree Tea and Industries, it needs to hold Rs 160-165 range and if it can go that then probably headed to Rs 180.