SENSEX NIFTY
Jun 08, 2012, 01.08 PM IST | Source: CNBC-TV18

Upsides capped at 5150; mkt to make new lows soon: Kedia

President of ATMA Sushil Kedia tells CNBC-TV18 that the current market rally is only a bounceback, and that the upsides are capped at 5150 for the Nifty.

Sushil Kedia, President, ATMA

The market is approaching the end of this week on a very different note than what it started on. The benchmarks have risen over 4% this week itself, the Nifty rallying from 4800 levels to above the 5000 mark.

But it this rally sustainable or is it just a bounceback? President of ATMA Sushil Kedia tells CNBC-TV18 that it is indeed and bounceback and that the upsides are capped. “For now there is indeed only a bounce with an upside potential to no more than about 5150, after which lows should get broken,” he said.

Once the bounce is completed, Kedia believes markets all around the world will move to hit new lows. “This is a phase where you have to be less predictive and more nimble footed,” he said.

His advice is to look for long trades on pullbacks as long as 4980 is held on to on the Nifty futures. “Once this phase is done and we find confirmed signals for the reversal around 5,150 or after 4,840 is broken, that is where you go short for playing down to perhaps 4,600,” he added.

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

Q: How have you read this bounce back to the market and tactically, as a Nifty trader, how would you approach it?

A: The bounce back is indeed only a bounce back. I need to revise my stand from what I discussed last with you, that should 5300 be taken out it goes to 5800. I think from how it has panned out, it is now going to be totally imaginary. For now there is indeed only a bounce with an upside potential to no more than about 5150, after which lows should get broken.

In a corollaries manner the S&P 500 has been lagging the Indian Nifty by between 6-8 days and on a medium-term timeframe by almost 8-9 weeks. I think this over the next one or two days it will see a late bounce, the same way that the Nifty went lower, perhaps to about 1285-1290. It also has the potential to fly back all the way to 1350.

I am not predicting because such bounces are basically nothing but a C-wave rebound after a B-wave low. This is a phase where you have to be less predictive and more nimble footed. Therefore, I think all of the equity markets world over are going to form another new low, perhaps after surviving in this sort of a bubbly phase for another 4-5 days and maybe in next 15 days you will see a new low everywhere.

Q: So what do you do purely as a Nifty position? At 5,000 or so, would you begin to start shorting the market or do you think it is just a good idea to step away from the index for a while till it does make that wave that you are predicting?

A: It all depends on each person’s temperament and risk taking ability. During the day, if 4,980 is not taken out in futures, that is the place to start picking up some very short-term long positions. Even if it breaks, given that there is a complex wave of structure, 5,150 can be seen until 4,840 breaks. So over the next four-five days, the stance is to be keeping on looking for long trades on pullbacks.

Once this phase is done and we find confirmed signals for the reversal around 5,150 or after 4,840 is broken, that is where you go short for playing down to perhaps 4,600.

Q: How much of this is playing out along with the currency market as well? What is it that you see on the dollar index and on things like the euro-dollar equation just to tying with the equity move?

A: On different timeframes, there are different things that I am observing. Let me chunk it into sort of one week’s, one month’s and one quarter’s view so to say. The dollar index in the very short run has fallen off a little bit; perhaps it is pulling up a minor rebound through the day today. Over the next couple of days again it should start gliding lower. It may not go lower than 81 for now on a weekly time horizon, within which this rebound of equities would have completed.

Now I am correlating too finely, and that is what the easy path is, but it may not happen out exactly in such a synchronization a day or two here there.

The most important player to my mind in today’s world is the Japanese yen-euro. From above 112, it skidded down lower to about 95.50, rebounded back up to about 100 and it is now pulling lower again. I think over the next one month, if this contract keeps pulling lower and goes to about 94.50, that is where I think it will complete a very powerful four-five year kind of time span pattern. This could stretch over the next two to two and a half months.

To understand our sense of the clock time in the market, the corollary perhaps is to take football game. It is only 90 minutes long and we cannot predict in which minute the goal will happen. The process of prediction is based on how far away we are from the goal post; if the ball has gone back towards the other goal post, the view changes.

So in that same sense, this timeframe that one is talking about are a lot euphemistic, but once this kind of a pattern completes, what I am also looking at is that we may get into a mother of all bull markets. Whether it starts in July, whether it starts in August, whether it goes to September, I cannot pinpoint it, but euro-JPY from about 94.50 goes back to 140 in two years and that is where the real risk on phenomenon will return back to the world

Everyone has all forgotten about the yen carry trade, it has been forgotten. I am talking 140 only for humility for right now. Should this much pan out, we will take a review maybe if it happens in 18-24 months, it could always go back to 170.

Now coming back on the euro-dollar, for the very short run 1.20 is perhaps the consensus. It is possible it can go and hit as low as 1.16, we don’t know as yet and so that leaves about 7-8% further downside on the euro. That leaves for a scope over the next one quarter dollar index can indeed go to 88 or 92, we don’t know these are complex patterns but that is what the broad feel is.

Q: Any specific long trades that come to mind on stocks that you would want to play at this point?

A: From the large cap names, Hindalco has worked out well from that Rs 105-106 to about this Rs 120. I think it’s a stock that one it’s same in adding in adding on all pullbacks. The next fly up target could be about Rs 135.

Say maybe Nifty comes down lower, it is unlikely the Hindalco is going to go back and break below Rs 112 or Rs 111. It’s going to form a higher low and I think over the next two-three months timeframe I feel safe in expecting Hindalco to be above Rs 150; that’s one good clean accumulation stock for now.

Q: Conversely anything that’s looking like a blind shot because a lot of the erstwhile leaders have begun to falter, things like FMCG for instance?

A: There is nothing called a blind shot, though one will have to keep stops. But I did hear you in the morning that Infosys despite all other IT names has been a little bubbly. I think give or take about Rs 100 from here, you can keep building your shorts in pieces and keep a trigger at say about above Rs 2,550. Should that stop not get taken out, I think Infosys is one stock that will still go and form a new six months low.

From the large cap names, the banks have been very volatile. But, I would say that until SBI takes out Rs 2,200, maybe expecting an Rs 1,800, it is not difficult. ICICI Bank has been a lot noisy, I think the punishment is still due there. So the banks will get pummeled.

Even Tata Motors dropped quite a lot from that Rs 315 odd number down to about Rs 220. Let’s see whether Rs 239-240 is not taken out. If it does, it can go to Rs 256. But eventually, whatever number of stop losses you end up hitting, I think one more new low is pending in Tata Motors for sure.

Tata Steel is also I think going to get punished in the next down leg. Most of the market I would say nothing is going to be spared.

Disclaimer: The above views are the personal analysis of Sushil Kedia, President ATMA and do not  reflect any opinion of ATMA

To know more about ATMA, please visit http://www.atma-india.net/

READ MORE ON  market, Nifty, Sensex, NSE, BSE, Sushil Kedia, S&P 500
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