Rangebound market best left alone, says Sukhani

ALSO READ See previous views by Sudarshan Sukhani See what other Experts & Brokerages are saying about Bata India See messages about Bata India

"Rangebound markets kill a trader," says Sudarshan Sukhani of s2analytics.com. Since the market bounces immediately, and there is no sense of direction, he advices traders to shift focus to individual stocks.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: We have just been discussing how range bound the index is. What kind of trade can you play on the Nifty right now?

A: It's not easy for the simple reason that rangebound markets kill a trader. You essentially buy at the highs and sell at the lows because the market bounces almost immediately and there is no sense of direction. So we have to understand that range bound markets are best left alone and focus should shift on individual stocks.

Q: You have got Bata on your buy list today.

A: Yes, after a long time. Bata has been in a bull market of its own and then all of a sudden it decided to go through a deep correction. But it's essentially deep correction, not a bear market and now I understand that this stock is going to resume its upward move.

Remember Bata moved up from Rs 150 to Rs 700, so this correction is nothing in the context of those gains. Yesterday, the appropriate patterns were made that suggest that swing traders should go long today. Position traders can take a longer time view, but for short term traders, Bata is a buy. Look at a target of Rs 587 and if it is crossed, Rs 600.

Q: Apollo Tyres is on your buy list as well?

A: It is because Apollo Tyres went through a bear market of its own which seems to be over. It then consolidated at the lower end of a small trading range and is now inching its way upward.

So what is the context in the market? The context is that we are in some kind of a trading range in the Nifty itself. But this range has come after a period of gains. So it is possible that a lot of stocks will keep on showing upward momentum while the market decides and chops around.

With that context, Apollo Tyres momentum is on the upside and that can persist even in a choppy market. So here is a buying opportunity. Target is Rs 66 and Apollo does wonderful things when it begins momentum, so you never know where it can go.

Q: On your sell call though you are negative on IRB Infra ?

A: We had a couple of days when these infra stocks went up 5-7% and there was a sense of rejoicing, but the market has not started yet. We have to see the context, from where they have fallen. They have gone up 5% on some days, but the decline is not over yet. At best, these stocks will become choppy. They will go up and repeatedly come down while they find a base and that process will take a lot of time.

For all we know, a new decline could be coming in, so IRB is a sell. Its amazing, the targets we can look at. It's not Rs 120 which is what I think it will reach in a day or two; it could be sub Rs 100 finally.

Q: You also see more downside on Voltas ?

A: Yes, a lot of capital goods stocks, and in those engineering stocks, are not completing their bear markets. We see these small relief rallies; sometimes they are spectacular in terms of percentage on a much lower base but that's all. They should be considered as one day movements only.

For Voltas, the decline is not over yet. In fact, Crompton Greaves has a relatively better chart. So for Voltas I am looking at Rs 70 and for all we know, we will find out where it finally bottoms out, but much lower probably.

Q: Back to the buys in your list. What kind of targets do you have for Cairn ?

A: The target for today and the next couple of days is Rs 355. It's the broad structure of what Cairn is doing, which is everything right. It's on the verge of making lifetime highs. It's not done that, but it's moving up, going up with higher highs and higher lows.

This is a stock that's in a bull market, so every time we want something to buy, Cairn is going to come in this list. For viewers, just keep it in your list as a buy on dips, buy on breakouts candidate.

Q: Cipla from pharmaceuticals.

A: Cipla has not done what it should have done given the chart correction, the base building that it went through. But then there is a sense that maybe it's getting ready for a fairly decent move on the upside. Cipla is a buying opportunity. Our targets are Rs 342-345. But the theme is that pharma broadly is to be bought into.

Q: If we do get a start around this 4700 mark, what should the next trading strategy be for Nifty trader?

A: It's not easy today because the chances are that we will still remain in a trading range. The problem is that the range boundaries are now expanding. With every passing day, the market pushes a few points up or a few points down and the boundaries keep on expanding. So now we are looking at a range boundary which is fairly large, 4700-4800, which is easy to understand and define also.

So the idea still is that if the Nifty were to slide below 4700 whether at the open or during the day, that's the time when initial short positions should be taken. Even that is not very confident trade because the market could simply expand that range to 4680 or 4690. But that's the way risk is managed. So initial positions on the short side should be taken below 4700 and on the long side above 4800. Between this 100 point boundary, there is essentially no trade in the near the Nifty. Just focus on individual stocks.

Q: So you don't think a contrarian long call would work out? Playing for another 100-120 points of a pull back would not be advisable trade?

A: These trades have a 50% probability. There is an equal chance that a contrarian trade can workout and at the initial stages an equal chance that selling at 4700 could see the market slowly slide because it's a range breakdown. So it's not that this is a better option or that one is. I think a trader can choose. I have always found that trying to buy at range boundaries ends up in a lot of trouble. So I usually wait patiently for this market to resolve itself one way or the other.

Q: What did you make of GAIL 's slip yesterday?

A: It's going to slip more, soGAIL is a short sell. You look at Rs 365. A lot of these stocks were in consolidation and then slowly have started breaking down one after the other and a lot of them are PSUs. But in any case GAIL is not looking good. It has broken the significant Rs 400 level. I think it is going much lower.

Q: Shriram Transport Finance was a big mover though yesterday.

A: It is. Again the context is that it has fallen a lot. But at least it comes with good quality. The fact is not only yesterday's move, for the last 7-10 days it's not falling. For any stock to begin an uptrend, the first requirement is it should stop falling and that it has done. So I would say that there is a buying opportunity here.

In these stocks, we can use the concept that Udayan was talking about, buying at the lower end of the range for a contrarian pullback. On individual stocks, it's far better than probably the Nifty which is the reason why I am suggesting that we can go long in it.

Q: From the frontliners JP Associates .

A: Whatever chart patterns we are getting in the short term, there is a buying opportunity. I am not very upbeat on JP Associates generally, but their momentum is mildly on the upside. So if you want to take a trade, it has to be on the long side.

Q: You have been speaking about United Spirits the last few days. What about United Breweries, which did so well yesterday?

A: I am not impressed by it. The big driver of that group is United Spirits and we know what it's doing and what it's going to do. This is not the end of the bear market for it. I have been talking about it and saying that it's going towards Rs 500 and it did that. I would not go and buy United Breweries at all. Some of these moves are either random or because of low volumes probably easy to manage. I would not touch that group.

Q: We don't often talk about this one, but what about something like Tata Metaliks ?

A: We saw a rally in Tata Metaliks and that's about it. I don't see that rally being significantly higher. This is not good news actually. A lot of midcap stocks are being picked and pulled. That's not the way a bull market starts. These stocks have to be forgotten. So I would be very wary about buying Tata Metaliks.

Q: What about KEC ?

A: KEC has fallen a lot, but at least there seems to be a sense that the worse maybe slowly getting over. May not be over, but it's probably at the last stages of its bear market. So KEC is a buying opportunity. I would think that even for an investor, at current prices, KEC represents decent gains for the next two years.