Use stop-loss method to participate in rally: HDFC Sec

In an interview to CNBC-TV18, VK Sharma of HDFC Securities spoke about the current market trend.

Below is a verbatim transcript of the interview: Q: What is the view on the Nifty? How would you approach it this morning? A: Nifty is very much near its resistance of maybe around 5,758-5,760. If it is able to cross that then we will see probably another 100 points rise. However, we will use any rise in the Nifty beyond a level of 5,800 to lighten the commitments. We will go back to relooking the technicals of the stocks all over again in case we do see a close above 5,971, which is almost a triple top that has been formed. We use the current buoyancy to lighten the commitments beyond 5,800 levels. Q: You are not quite convinced that this is the start of a fresh uptrend? You are reading this just as a pullback which probably has a 100 odd points more? A: Currently, the problem with the investors is that the fundamental newsflow continues to be bad and you cannot buy stocks based on a fundamental basis. However, the technicals are so strong that you have seen positive divergences in almost all the stocks. The technicals are good but use any rally beyond 5,800 levels to lighten commitments and go back. In case, the fundamentals are changing, you can always go back and buy a level of 5,971 if it is crossed because that is a huge amount of resistances. A triple top has been formed. So, it will take something more than whatever has happened so far to take the markets. There is a rally and you should participate in this rally by using stop-losses. Q: The sector which did quite well yesterday was public sector banking. How would you approach names like a large Punjab National Bank (PNB) or even a smaller Dena Bank? A: The positions have been built and it is coming up after a good amount of beating that the public sector undertaking (PSU) banks have received coupled with the fact that positive divergences also seen in these banks, I am suggesting for PNB one can buy 760 Call, which closed at around Rs 16 yesterday. I am asking you to buy at dips probably because we might have a slightly weaker opening here. Buy at around Rs 12, keep a stop-loss of Rs 8 and hope to sell this at Rs 20. In case of Dena Bank, the charts are slightly stronger. Positions have also been built but minor 1 percentage points have been added in terms of open interest (OI). Stock price has gone up by 3 percent. There, I am suggesting buying the 95 Call, which closed at Rs 3.85, buy it around Rs 3, keep a stop-loss of Rs 2 and hope to sell this at Rs 6. So, your risk reward ratio will be pretty good at 1:3. Q: You have a call on Crompton Greaves today, what would the call be? A: It is one of those smaller stocks, which are slightly popular and options are pretty liquid here. So, in Crompton Greaves we have seen positions being built slightly 2 percent, stock has also gone up by 3 percent. I am suggesting buying the 100 Call, which closed at around Rs 2.65 yesterday, buy it around Rs 2, keep a stop-loss of Re 1 and hope to sell this at around Rs 5. So, the risk reward ratio would be pretty good here i.e. 1:5. More importantly the overall positions that we built in stock futures per se in the current series at Rs 129 crore is the lowest that we have seen since September 2009. So, there is more elbow room for the markets to build and still not get heavy around the buying side.