Mar 29, 2012, 10.52 AM | Source: CNBC-TV18
President of ATMA Sushil Kedia tells CNBC-TV18 that any additional bad news could hit the market and take the Nifty to as low at 4800.
Sushil Kedia (more)
President, ATMA | Capital Expertise: Equity - Technical
According to him, the market is now expanding its trading range and making new lows and highs. “This offers a trading opportunity, where you can buy in the new lows and sell higher,” he said.
On the other hand, if there are no newsflow hurdles, Kedia believes 5200 is the Lakshman Rekha for the market. “The market is unlikely to cross past this despite several efforts it may make,” he explained.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: Has the action of the last few days and the volatility convinced you that there is more downside than perhaps even sub-5,000 levels on the Nifty?
A: Yes that is what the picture is looking like, though it will perhaps happen mostly in layers. For the very short run, today being the expiry, there are indications that the market is sort of oversold on an intraday timeframe. In the 15-minute chart on the Nifty, the RSI is refusing to go down. Chances are that even with a down-gap opening around 5,120-5,130, the market can go back and test this 5,200 number again.
Now this 5,200 number has a very interesting pattern I use. The large sort of index finger pointing out and these four folded fingers on the chart is what I call the Sudarshan Chakra pattern. 95% of the time what happens is the base line of this number, which is 5,200 here, will become the Laxman Rekha, the market is unlikely to cross past this despite several efforts it may make, should there not be any additional severe bad news. If the bad news is there, there can be a major slide and the calculation for a projection to the downside on this comes to about 4,800 for now without 5,250 taken out.
Q: Generally high beta has not had a good month, but on the bank Nifty specifically what is your trade now?
A: In line with the structures on Nifty, the current fulcrum for me is about 9,500 and from thereon to about 10,300. Once we have struggled inside this range and tested 9,500 and that does not hold, it can go down to 8,500 but that is pretty far. Right now let us focus on 9,500 and 10,300.
Q: The talking point over the last couple of days has been the ten year yield and the way it has moved to 8.62%. Any of your chart studies have interest in correlation patterns with the index and how it has moved in the past?
A: The ten year yield is basically a rent on the cost of doing business, it is a rent on capital. Fundamentalists who try to predict markets based on the cost of doing business, whether it is oil or the yield of bonds, both are incorrect because you are trying to forecast by looking at the rearview mirror, you are trying to believe that the cart is leading the horse. How you understand that this is incorrect is that whenever you are running correlations between any two data series, you keep on changing the lag of the series that you are using as an independent variable, which in this case is the yield. If the lag is increased and the explained correlation increases or improves, then you understand that you are trying to predict the dependent variable using the independent variable.
But in this case because, you are doing the inverse of what you should do, simply plot the ten year bond yield and plot the stock market on top of the same chart and you will find that by changing leads and lags, the stock market is a better predictor of the yields. In that sense, one would like to say that RBI is not interfering with markets but it is only responding to markets.
So about 5-6 months is what at most the lag goes to, but sometimes it gets compressed to as much as about three months. If you look at the period in the last ten years when yields slide down during 2008 crash, yields were lagging the market and right now also, from 2009 January low, the yields are continuously rising.
Coming to the point of trying to do technical analysis of yields, they are not as granular as the widely traded markets yet at this point, but it is looking like the yields are not going to be going down significantly. I would place a 5-10% chance on a minor cut in April, but for those who are smoking the cigar of 50 bps cut or 75 bps cut, you are programming yourself for a big disappointment. Yields are likely to be rising up and if they rise up, it is good news on a 3-6 months kind of time horizon and that is what I would like to conclude on the yields.
Q: How would you trade this market now, would you just be short with that 5,250 kind of a stop loss or is it too volatile to take a one sided trade like that?
A: The value of volatility on different timeframes is different, and in that sense taking a generalistic sense, which is what most of us talk about, this market phase is going to offer good trading opportunities rather than trend riding. Within that, the upper end of the trading range seems to be stretching up from about 5,220 to about 5,250 or rising by about 5 points per day.
On the downside, first 5,100 and then 5,000 and then eventually 4,800 is where I think I am noticing the cone of expanding opportunities. Hence buying a newer low in the trading range and selling a newer high in the trading range is going to work for some days. Trend following is not a religion to be applied on the daily basis.
Q: Some of those key stocks we were talking about and how you would read them technically, Reliance and within the banking space SBI?
A: Reliance has fallen a quite a bit; while the rest of the market looks down you cannot think of Reliance flying up. But a crucial number on that for me exists close to about Rs 710. Should that break, I will be willing to take on additional new short trades. It is too late right now until Rs 710 breaks to try and get adventurous with Reliance right away on a trading timeframe. So on a medium-term of 3-6 months, reassured chart of revised prices divided by Nifty clearly shows that if for some reason Nifty fell down by 15%, Reliance may not fall down by more than 7.5%, relative outperformance is getting back into Reliance.
On SBI , the recent lows around the current area are pretty crucial, and once those break I won’t be surprised to see SBI dropping by as much as Rs 400-500. Until that break comes, it is a preempting but should that come, I am going to definitely press the sell button.
Disclaimer: The above views are the personal analysis of Sushil Kedia, President ATMA and do not reflect any opinion of ATMA
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