Next key level for Nifty seen at 5300: Anil Manghnani

Anil Manghnani of Modern Shares & Stock Brokers told CNBC-TV18 that the next key level to watch out for on the Nifty would be 5,300.

According to Manghnani, there are two ways to play the market now. "Either you let it ride, don’t sell anything and you keep your stop at 5200 because that’s where the breakout is. So, if it goes back below that then you sell half at 5,300 and ride the balance half with the next target being somewhere closer to 5,420," he elaborated.

Below is the edited transcript of Manghnani’s interview with CNBC-TV18. Also watch the accompanying video.

Q: Powerful breakout for the market last week, how are you approaching it and what kind of stance should a Nifty trader should take now?

A: Two very key things happened on Friday globally, not just in India. If you look at the Nifty, 5200 was a major problem area. It wasn’t crossing it for 10-15 days but that’s the power of a breakout. Once you take out a level two things happen, first the shorts come to cover in a big way and that happened globally.

Across the world nobody was expecting much from the EU Summit, so major short covering has taken place. In addition the people were waiting for the breakout come and take long positions, so that’s why we saw the rally last right through the day.

Couple of weeks back when the rupee touched 57/USD I mentioned that the market is showing so much resilience that with the rupee at a new low still the market was trading above 5,100 that could actually work in favor of the market, that is when the rupee appreciated it would help fuel the next breakout, the next rally. So, that also showed or went through on Friday with the rupee appreciating quite sharply, atleast an excess of 2% and the market breaking out.

We have reached a first key level, 5300 for me was the major Fibonacci retracement. There are two ways to play the market, either you let it ride, so I don’t sell anything and then you keep your stop at 5200 because that’s where the breakout is. So, if it goes back below that then you say the breakout story is over or then you sell half at 5,300 and then say I will ride the balance half with the next target being somewhere closer to 5,420.

Q: Will the Bank Nifty be a preferred tool in terms of playing this market because by the end of the series it’s still come out as a leader?

A: I don’t think as much now. When the rally first started at 4800 there were clear signs that the Bank Nifty was outperforming the Nifty. Even in the correction while the Nifty did like a 76% Fibonacci retracement, the Bank Nifty only did a 61.8%. So, it was all showing a lot of strength even on the way down and so no surprise had led the rally.

But now at 5,300 interestingly both the Bank Nifty and the CNX Nifty are hitting the 61.8% retracement at the same time that means the corresponding 5,300 number on the Nifty is about 10,380 on the Bank Nifty. So surprisingly, I would have expected the Bank Nifty to have crossed the 61.8% retracement much before the Nifty given that it had started the whole rally.

So, now there in sync, if the Nifty was supposed to sustain above 5,300 and the Bank Nifty were to sustain above 10,380 then correspondingly for the 5,420 target on the Nifty, the bank Nifty target would be about 10,680. I think now they are more or less in sync with each other, that outperformance has possibly given up now.

Q: From the power space you have a buy on PTC for the morning, can you tell us about that one?

A: I have been saying for the last week or so that power stocks are breaking out. Last week I gave Reliance Power, so this week I have gone with PTC. Although I am not a big fan of buying breakouts, but now the market has rallied in excess of 500 points so you have to look at stocks that are breaking out or since everything has moved you are going to be buying higher itself. This is a stock that although has moved its really beaten down and still has a long way to pullback. So, with a stop of Rs 59 which is the 20 DMA the upper levels that are still to be achieved in this moving are Rs 70 and then Rs 74.

Q: If you had book profits in a couple of heavyweights, if you are making money on them which ones would you be most cautious on right now and would take your profits off the table?

A: I thing just chartically to say to sell something you wouldn’t get just based on yesterday’s move. But if you are looking strictly by Fibonacci levels then I think there is some important ones. Infosys if it can stretch all the way to Rs 2600, an ICICI Bank Rs 910, SBI at Rs 2200-2220, you look at a Tata Steel anywhere closer to Rs 450, Dr Reddy closer to Rs 1670, Tata Motors closer to Rs 256.

So, a lot of stocks will be reaching their key resistance level. Now do you sell just because it has come to a Fibonacci level or do you wait for the momentum indicators like RSI or LEA to tell you to sell, I think that’s your call. But some of the numbers that I have given you are all key Fib numbers that you need to watch out for.

Q: Do you have a view on two of these stocks; Mercator Line had a sharp move on Friday and something like TVS Motor that saw quite a bit of an upmove after a long time?

A: TVS is a weird stock. If you look at that stock either it goes one way up or one way down and it spends an entire year going up and an entire year coming down. So it’s too early the way it’s collapsed all of last year and didn’t even participate in the January-February rally.

It tells me it’s too early to take a call on that stock. Even Mercator for that matter, I think the stock was hitting life lows or 2008 lows and the market is nowhere there. So it’s a little early to take a call that this is a fresh move or just an oversold reaction but I am not sure what it is closed at. But I am pretty sure around the Rs 23 or Rs 24 mark there is a lot of resistance for Mercator.