Nifty may start pullback this week; 4800 a key: Jai Bala

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Nifty may start pullback this week; 4800 a key: Jai Bala

The market has been very volatile over the last couple of sessions. Jai Bala cashthechaos.com says, the possibility that the markets are going to start pullback this week is looking quite bright.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Jai Bala See what other Experts & Brokerages are saying about Crompton Greave See messages about Crompton Greave Crompton Greave BSE | NSE 24/05/12 Are Mutual Funds betting on Crompton Greave? Other Stocks in this news Reliance Industries |

The market has been very volatile over the last couple of sessions. Jai Bala cashthechaos.com says, the possibility that the markets are going to start pullback this week is looking quite bright.

According to him, the problems for the market are starting to come from the global market space. "The markets are diverging negatively; 4,800 is a very important level, if this is a new bull trend. If this is not a new bull trend, the first indication will be that the markets are going to print 4,800 on the Nifty spot," he adds.

Also read: Don't question wisdom of mkt; best to go long, says Sukhani

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: How is it looking, we have had two very big days, one on the way down and one on the way up?

A: Last time, I said 5,225-5,275 is the area where the pullback rally might start. We saw a high of 5,217 on the Nifty. The market started to get volatile from that level. That level also coincided with the 200-day moving average (DMA). So, the possibility that the markets are going to start pullback this week is looking quite bright. For the first time during this rally, from December lows, the breadth of the market is starting to diverge negatively. Let us see how far the pullback takes the market lower.

Q: If there is a pullback, what kind of levels do you see it drifting down to?

A: The problems for the market are starting to come from the global market space. I had mentioned this two weeks ago about the Portugal and the Baltic Dry Index. Portugal's spread over Germany has gone over the cliff. It is right now at about 1,500 basis points over that of Germany. That is a disastrous scenario.

If you look at the Baltic Dry Index, it is just 17 points away from hitting the 2009 lows. These are very big warning signals for the market. I am sure the markets have not so far priced in that. Once they start to price in that, I think the markets are going to start to react negatively.

If you see the euro also below 1.30, that is also going to give some kind of psychological problem for the market. The markets are diverging negatively. I also said last time that 4,800 is a very important level, if this is a new bull trend. If this is not a new bull trend, the first indication will be that the markets are going to print 4,800 on the Nifty spot. If that happens, you will know that this is a sucker rally. You should be very cautious about that. Until that, the markets are safe.

Q: On the Bank Nifty, what kind of trading targets would you set?

A: I think it's looking a bit stretched. But if the Bank Nifty were to head above 10,100, that is very positive for the whole market. But if it were to drop below 9,600 on the Bank Nifty, it will be the first sign that the correction has already commenced. So, you should position yourself in such a fashion. Bank Nifty is going to be very important indicator for the markets

Q: Why are you short on Crompton Greaves this morning?

A: I think the long-term correction is not over. The medium-term picture still looks bleak for Crompton. There is a good possibility that it might go back slightly below the December lows. I think it has even small chance of clocking double-digits. If you see the stock print below Rs 130 today, I think its good shorting opportunity and you can place the stop slightly above Rs 145. You can expect Rs 110-105 in the short-term.

Q: How are you approaching Reliance now? Any more strength you see this series for that one or has it gone back to being a market performer?

A: I think that is probably the best case scenario for Reliance. I think it's going to go sideways for some time. As long as it remains Rs 875 in the medium-term, I think it's going to be a market performer at best. In the short-term, it's going to see some resistance come in about Rs 835-840. So, you are better off being cautious in this stock and staying away from the market. There are better stocks to pick and you are better-off staying off.

Q: At what point, would you relook at your bearish call on the market medium-term? If this rally continues at what level, looking at what metrics would you say that the bearish trend might have come to an end?

A: There is 40% probability that we are already in a bull trend. But the odds of we still being in a powerful bear market rally is slightly higher, it is about 60%. The next pullback is going be to start very soon. It is going to be as early as this week. If that pullback can sustain well above 4,800, in probability, if it's a bullish trend, it is going to stay above 4950-4900. If that is going to be the case, I have probably sat on a cash a bit longer than required. I have to start turning bullish on the markets.