Nifty may go to 5600, if global momentum continues: Udayan

On the Nifty:

I don’t think the numbers are very important. These are lines in the sand, which the market can take out at any point. They might be important crutches for traders to trade with, but the market does not have too much respect for these levels. When the market was breaking down, it broke down below some averages, below 5,100 and everybody said oh, now the next stop is 4,800. But it has stopped at 5,040 randomly. I don’t think that was an important resistance or support level and then it pulled back very quickly to 5,350. So, these are levels will come and go.

The key thing is to keep an idea on the current momentum globally. That is far more than any kind of level because if the global momentum continues, 5,350-5,400 can easily be taken out. We can go to 5,600, we can go even higher. So, right now, you don’t want to say this level and after that I will short the market or I will go against the current momentum because that would not be a prudent trading strategy.

Right now, all you can do as a trader is to get your discipline right. That is you say, ‘if the market turns against me, I will do this as part of my strategy to preserve the profits that I am sitting on at every higher level.’ I think that is a prudent thing to do for the trader, not to say that 5,420 is the top and after that I will go short because I think that level is important. That would be a silly thing to do.

I have no idea where this liquidity thing is taking the market. If in the next few days, thousands of crore of money sloshes into global markets, we could go to well above 5,600 as well. But that is done in the realm of the predictability at this point in time. So, you stay with the screen at this point. It is showing you higher and higher levels and you tag along everyday maybe with stocks, maybe with the index and keep stop losses where you protect your profits on the way down.

From an investment call, I think you should not change your view now on the market because prices have moved up. That mistake people have made a couple of times in the year saying new bull market has started and therefore we should be buying and accumulating stocks in the portfolio. For that fundamentals have to change and they haven’t changed around right now.

On flows:

That is the only game in town and Rs 800 crore in the cash market, Rs 700 crore of Nifty futures buying. People know that every morning now they will wake up to positive FIIs numbers. That creates a virtuous cycle of its own. You will note that even domestic institutions have stopped selling now because they know that global risk-on is leading markets higher and they should not be selling against this trend. So, even DIIs had a small Rs 50 crore positive figure yesterday.

I think in the options market too things are changing. So far, we have seen most of the options activity suggesting a 5,200-5,400 kind of a range. But yesterday the kind of buying we saw in the 5,500 Call seems to suggest that traders are now saying this range is going to expand. We are not going to be stuck in this 5,200-5,400, but maybe we are looking at higher levels. That could be right or wrong, but atleast that view that whatever happens to the market, you should be selling the 5,400 Call because there is no life beyond it has started changing over the last couple of days. That is quite significant.

Yes, the market is getting a little overheated, it will get more excited. So, the risks would be rising with every 100 points on the Nifty. Some of the fundamentals will also worsen like crude on the margin. But as a trader, you have no opportunity or nothing else to do but to tag along with the rally.

On trading strategy:

Getting in is not a difficult thing for the trader, it is where you get out is the most important thing. If you are a disciplined trader, you can get in at any point in a momentum market. Fundamentally, you have to be cautious, you have to be cognizant of the risks which are rising every day with the valuations getting more expensive. But if that stops you from participating, you will never be able to catch a rally as a trader.