What is the key level for investors? 4800, says Jai Bala

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 Tata Motors See messages about Tata Motors

Our market has seen a stellar performance in the first month of 2012. Large investors and FII's continue to tread our market carefully in this January rally but it appears that investments are returning and volumes are gradually picking up as well.

In an interview to CNBC-TV18, Jai Bala of cashthechaos.com suggests that investors who have profits on the Nifty should take some of it out. "The pullback to this price is going to come really soon so protect your profits if any. If you are not long you should look for weakness once the market starts trading below 4,980."

For those looking to invest, he recommends 4,800 as a key level from a medium to long-term point of view.

Below is an edited transcript. Watch the accompanying video for more.

Q: What is your view on the Nifty? Do you think it has reached those overbought levels? Should one cut any positions on the long side or do you see more to go on the upside from here?

A: If you have some profits on the Nifty, it's time to take some profits off the table. You should be partially long here and not be overly leveraged. The pullback to this price is going to come really soon so protect your profits if any. If you are not long you should look for weakness once the market starts trading below 4,980. If you are an investor the key level is going to be 4,800.

Until 4800, we can assume the bull trend is intact but my suspicion is that I am doing 60% odds that this is just a bad market rally and 40% odds it is a resumption of a new bull market. So that being the case 4800 is going to be the critical support for the medium to long-term from an investor perspective.

Q: On the upside what would convince you in either direction? Would you want to see the market pierce up a particular level to see that there is still strength intact or would you start opening up short positions at one level on the index?

A: There is no doubt that the market is exhibiting strength at this point in time but from a technical perspective this move has been in a three-step fashion which is not a sign of a bullish trend. It has to move in a five-step fashion which is the reason why we are actually waiting for this market to provide additional signals. So the market needs to pullback and hold above 4,800 and then take off to new highs.

If it does that then it's an indication of a new trend. As of now it's just looking like a collective rally. It can go either way. If it drops below 4,800 a new low is coming for the Nifty and the Sensex but that's the reason why 4,800 is a critical level. It can drop to 4,801 but it cannot drop to 4800. I cannot emphasize that level more than that.

Q: Would you be able to take a call on the series right now in terms of projections that you are seeing or trends that you are seeing on the index?

A: The series doesn't make much of a difference. It's just the same technical picture. As long as the market can respect these technical levels it's a bullish uptrend but once the market drops below 4,800 it would mean the rally was just a powerful bear market rally. So it doesn't make a difference if it's a future series or a cash market series.

Q: If you do advice cutting any position that you have made on the upside, where would the skepticism be the highest? Would it be in some of the capital goods names that have seen the biggest performance this series or something like banks where you think the short covering will end?

A: It's partially both but it's more tilted towards the capital goods side. The banks are actually displaying fantastic strength. In fact, it's the private sector which is giving the bout of skepticism and among the capital goods L&T is looking like a very powerful bear market rally, it's still not convincing despite such a sharp rise.

Capital goods are going to be a cause for worry. Reliance is the major kink in the arm of the bulls and that is still displaying weakness. The best case for Reliance at this point in time is it goes sideways and then the market starts to get better. But it still looks like Reliance is going to go back to the December lows and test those lows one more time.

Q: There have been some weak rollover scenes in some of these defensives like IT and FMCG. Fundamentally as well people are recommending a shift from defensives to cyclicals. Do you see some of these IT and FMCG names as low preferences getting into the next series?

A: In December I had said when the market was heading down I-T will hold up and now I-T is actually starting to rollover to the other side. If you watch the CNX I-T, if it breaks 5,700 on the CNX I-T the I-T rally is done. Right now it's ambivalent, it can go either ways and if you look at defensives ITC is actually throwing up mild signals.

It's not going to drop down much but the market is shifting towards other stocks. But that can actually be interpreted as a bullish sign. The money coming out of defensives and coming into other stocks can be interpreted as risk trying to take more money. So that can be interpreted as a bullish sign but we have to wait for a further close.

Q: How would you approach some of the metal stocks which is a high beta space and has had a pretty sizeable rally on specific stocks?

A: The rally in the metal space has been quite good. The rally has come up with excellent volumes which is an encouraging sign but what still remains the pending factor for the metal sector to turn bullish is that they should pull back and put in a base and that has still not happened. So that is the missing factor for the metal sector to turn bullish.

But so far the volumes for Tata Steel or Sesa Goa or Sterlite have been pretty good. In fact Sesa Goa's move yesterday has been quite good and so all they need to do is they should pull back. If you are an investor you should wait for a considerable amount of pull back and see if they can put in a base and you can go long on this sector.

Q: In the list of stocks that have been having a relentless run in the last one week, Tata Motors and Bajaj Auto make the list. In two of these stocks particularly do you see more of an upside from here?

A: Yes. Tata Motors' technical structure is quite attractive. It's going to go back, challenge the highs it made in December 2010 that's about Rs 264-265. Before that it's going to do one pullback to about Rs 210-205. So if you are long at this point in time you should place the stock somewhere below Rs 205-200 and hold on to the stock. The pattern here is quite attractive and it's going to go back to test the all time high of Rs 265.

Q: How are you trading ACC today?

A: Cement stocks have been one of the most bullish in the entire decline. ACC still has some residual momentum left and it's going to go back to a new high or at least a slightly all-time high. It has the potential to scale above Rs 1,250-1,260. So one can stay long here then place a stop below Rs 1,120 and go long on the stock.

Q: What about a retail store like Pantaloon ?

A: Pantaloon's run-up seems to be over but we need to get confirmation today, if it drops below Rs 174 today. This stock is set to decline to at least Rs 150 if not the low we saw in December. If it triggers below Rs 174 today one can trade with a stop of Rs 184 for the price low of about Rs 150.

Q: What about Suzlon and the kind of uninterrupted up moves that we have seen on that stock for a while?

A: That has been one of the most beaten down stocks. We saw the stock go down from Rs 55-58 to somewhere about Rs 15. Like most stocks here we need to see a pullback. If it can pullback to somewhere about Rs 22-21 and then go above the recent high it has just seen it can't be a very bullish pattern. At the moment I am still treating this as a trading bet and a relief rally and not as a new uptrend.

Q: What is the call that you have in terms of how the rupee would move technically from here?

A: The USD against INR has been deeply oversold and that's going to be a good snapback which is going to come through. The medium term picture what I presented in August when the rupee was trading at about 45 remains unaltered despite the sharp decline in the strength of the USD against INR. The USD-INR is going to hold up 48-48.5 and from there you are going to see the next leg of a big move.

Probably if it spends sometime above 48.50 and then once again when the attention is off the USD-INR that's when the USD is going to start rallying against the rupee. If you look at the dollar index, if it does cross above 80 that's going to be another factor for USD-INR strength.