Jan 24, 2013, 11.19 AM | Source: CNBC-TV18

Mkt is rangebound, do not trade: Sudarshan Sukhani

In an interview to CNBC-TV18, Sudarshan Sukhani, s2analytics.com says, the first signs of breakdown are coming because the Nifty has rallied. The market is rangebound, so it is best not to trade, he suggests.

On Wednesday, the Sensex rose and ended 0.33 percent higher but sentiment remains constrained ahead of key earnings and an impending central bank's critical decision on interest rates next week. The Nifty rose by 0.22 percent

In an interview to CNBC-TV18, Sudarshan Sukhani, s2analytics.com says, the first signs of breakdown are coming because the Nifty has rallied. The market is rangebound, so it is best not to trade, he suggests.

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He further adds, both the Bank Nifty and Nifty need to be watched because the Bank Nifty will tell us before the Nifty, where the broad market is going.

Belwo is the edited transcript of his interview on CNBC-TV18

Q: We have been talking about the market looking ranged. Are you seeing a threat to that? Is the range breaking down on the downside for the index?

A: We have been talking about the market being in a range and luckily we have been away from the market. This range bound market is hardly the place where you want to trade.

The first signs of a possible breakdown are now coming. It is not because of the turbulence or the choppiness we saw intraday. It is because the Nifty has rallied. Now there are primarily two options for the index. One, it can continue this sideways moment and that can sometimes substitute a correction. Two, it can begin a correction now.

A rally seems to be out of question or rather very difficult to achieve. Whether we consolidate at current levels, chop around 50 points lower, 50 points higher or we simply correct a 100 or 200 points that the market will tell us. The 6000 level is probably the benchmark below which we will know that we are going in for a further 100 or 150 points of correction. That is quite possible.

The Bank Nifty has a much closer benchmark. It is 12,600 and we are at 12,640, so it is very close to the support levels. Perhaps the Bank Nifty will tell us even before the Nifty where the broad market is going to go. Both need to be watched. Inside this trading range it is best not to trade.

Q: Apollo Tyres is in your sell list today?

A: Apollo Tyres has been a disappointment. A lot of the midcap stocks that we thought would continue and maintain their rally have now come about on the downside and that is exactly what happened to Apollo.

When Apollo went to Rs 90, the sense was that the next target would be Rs 100 but it stopped there. It could easily have been a consolidation prior to another upmove but that was not to be. It started a decline and has broken from a support level. That tells us that at least in the short-term, what was happening at the top was distribution. So, lower levels are likely before we can see another minor or macro base building. It is a short sell. For those who are uncomfortable selling short, just stay away.

Q: Industrial Finance Corporation of India ( IFCI ) is the other trading stock that you have picked on the sell side today.

A: IFCI is a dream short. It is a far better short. We had one big rally in IFCI on the back of news that it will get a bank license or that the government was adding to its shares etc but then IFCI started drifting down. That drift has taken the shape of a very bearish pattern and IFCI is prone to big declines. So, it is a very nice short selling idea.

For traders who want to do it in Futures should remember that the lot size is large but the rewards are also potentially fairly large in it. I would say this is a positional short.

Q: You are long on ITC ?

A: ITC had a big decline. That decline was going to be a correction. Then as ITC usually had a V-shaped rally. You cannot catch a V-shaped rally almost immediately but there was a sense that the decline is over, and if the markets remain choppy ITC could easily still outperform. That seems to be happening.

Now a minor support level has been broken yesterday, so it is possible that as the other heavyweights keep on moving up or down and that is how the Nifty chops ITC could steadily move higher. This is something that needs to be taken in context, look at ITC’s opening, but if at all there would be a long trade in some of the Nifty heavyweights ITC should be probably the first choice.

Q: You are also long on Wipro ?

A: The big decline in Wipro has brought it to a strong support level of Rs 360-370. I would assume that this decline in Wipro should be bought into. We can easily see strong bounces from the supports. Wipro has not fallen after last two days of declines. So this is a buy on dips trade, also a large risk trade, but then there are potential rewards.

If Wipro is not falling any longer today, then wait for the first one-one and half hours, wait for a sign that the stock is rallying, that sign could come early morning, afternoon or maybe tomorrow, but it is worth taking a trade on the long side.

Q: Are you comfortable selling Biocon ?

A: Yes. Biocon has completed its bull market and now it has made a fairly bearish pattern. I would assume that this bearish pattern will breakdown, results or no results. Maybe there can be a short-term volatility, that’s all. It is very unlikely that this pattern is going to lead to significant rallies unless something very unusual happens. So, Biocon is a short sell. Prior to the results there is larger reward and after the results the rewards could easily change, but the trend is down.

Q: Do you think there is more steam left in Asian Paints ?

A: There is more steam left. We have been tracking Asian Paints since it was Rs 2,000, it has already doubled. At every level I would think it has gone so much how can it go higher, but we have to go and buy it because the charts are saying so.

At Rs 4,400 Asian Paints is suggesting another upmove that could be as much as 10 percent, 400-500 points, not necessarily immediately but eventually. So for day trader it is a relatively safe buying opportunity. The only way these buys or sells should be avoided is if the Nifty literally takes off in one direction. Otherwise the chances are that both segments could make money.

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