Nifty may slip to 5400, take bearish trades: Sushil Kedia

He says one should not add fresh long positions to the existing ones now. "If the market slips below 5,400, one should look for very large shorts . From the current levels to about 5,400, nibble into shorts and expand your trade and plunge the remainder risk capacity after 5,400 is taken out," he added.

Below is the edited transcript of Kedia’s interview with CNBC-TV18.

Q: Where do you see the Nifty moving from here now that we are perched almost at a 52-week high?

A: Yes, 52-week high it is, yet in the context of how it has moved in the recent past. It has moved already quite a bit and there are signs of distribution here. One is taking the stance of definitely not be adding more to any existing long positions. There are significant pockets of the markets where the opportunities to go short are becoming visible and apparent.

If I break down into the components of the Nifty, Reliance led this entire move up. It’s done its bit. Already down. CNX-IT did roughly similar and that’s where I think opportunities for going short already come in place. I don’t think I will be able to make money going long on Tata Motors or for that matter even Tata Steel right away.

The way to tip the hat is on the bearish side on them. It is the banks basically which still have a few days more fizz and froth left. I would say this is more like a point of inflection with my own bias to be on the side to seek short trades. I can stand proven wrong for sure. But as of now I want to take bearish trades on this market.

Q: Do you think then that 5,650 is it for this move or do you think there is some headroom even if the market were to turn from here?

A: More or less we are done with. Yet it becomes semantic and academic in terms of splitting hairs on some level getting broken around here. Sectors and stocks are not really in coherence. That is the first sign to me that this is not a move that has further grater sustenance ahead.

It is more like in the nature of a rally which is about coming to an end, give or take 25-30-50 points, 80 points whatever the bias remains. Even if for some reason Nifty were to jump up a 100 points further from here, will it create an evidence and a thumping argument on the table that this is a market to be going long, the answer is no.

Q: What’s the downside projection? If you are looking for shorts, if the market does turn from somewhere around here what kind of levels could it go down to in your book?

A: My aggression will go up steeply in terms of seeking very large shorts once the market is under 5,400. From the current levels to about 5,400 is for nibbling into shorts and you expand your trade and plunge the remainder risk capacity after 5,400 is taken out. Should 5,400 be taken out which is possible, I am looking at about 5,050.

Q: Which are the best looking charts in the market now? If you had to stay with longs for the moment, which ones would you be most comfortable holding?

A: Right away banks are displaying that strength. There is no reason yet on the charts to disowning them. Over the next 3-5 days you could still see reasonably good gains in them.

Q: What are you seeing on the global charts? Do they appear like they are peaking? There has been no major pullback yet post QE3.

A: The global markets are posing interesting challenge right now in terms of the inter-market relationships. The dollar index, which I wasn’t anticipating to be going under 80.75 and had that level held, my view to a ride to 88 in the immediate future has stood negated. Having come under 80.75 what has changed?

The labeling of the wave structure has changed whereby the entire move up has been classified only as a rally. Now in the immediate period of last 10-15 days of behaviour, it has fallen off quite a bit. A rebound is possible by say a 100-150 bps within which strong pullbacks can come into various markets.

Yet, the bias on the dollar index on one hand is to be shorting again on any such pullbacks of about 100-150 bps. The euro-dollar interestingly, is making very strong signs of a very strong peak for one last round of collapse, going under 1.2 perhaps to 1.6, which is what many chartists awaited. There is incoherence here. If you also look at how the pair of JPY-euro is behaving, it has made a significant 4-5 year kind of low already.

I am already smoking a strong pipe of looking for 1.40 plus from the current levels in about next 3-4 years. Again we are talking on different timeframes on all of these things. On a 3-4 year timeframe, if a move has already begun on JPY-euro for a 45-50 percent kind of rise and that is the currency pair that has the strongest stable positive correlation with broad asset classes.

The fuel for bull market is already becoming expensive is how we should interpret. Yet in the shorter run with the collapse of the euro certain assets, which may have a stronger correlation to that can go and make significant dips. In terms of specifics, the S&P 500 does not look like that it is completely out of the woods. It is going to go and break the low of this year. Despite that when it breaks that low the wave structure is right now poised as will be a point to buy to be a contrarian. It is an interesting kind of a complex rally that is truly getting pushed with a lot of money supply on one hand

When I combine that with the conundrum again on how Shanghai Composite is placed, it is scraping the bottom of a barrel, it is refusing to go down. China is closer to a bottom and India may not go down very significantly and other global market charts in the western side are looking in the short run more like topping out.

Maybe if the euro vs. dollar chart collapses down to 1.2 or lower S&P might drop by 200 points and India may not drop in line with that, not going below 5,050 maybe and Shanghai Composite might now even go down by 5%. Right now correlations are behaving in very different ways. It is time for taking each thing with a pinch of salt and taking it in steps.

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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