How charts of S&P and Nifty are looking right now

Even with Dow touching record highs, talking to CNBC-TV18, Sushil Kedia, director - quantitative strategy, CIMB, says that once 1516 or a lower closing is noticed on S&P, his technical system is going to trigger a sell call. He says that so far, there is no evidence for him to suggest a ‘buy’, and anticipates a sell on S&P to come in a few days

Here is an edited transcript of the interview. Q: First, a word on what you are seeing now for the S&P because that’s really been the star market. Is more coming for these indices after the record highs the Dow made?
A: That’s a very important contract to look at today, particularly when it spikes the sentiment that it’s a new high. Now, if every new high was a point to buy and every new low is a point to sell, then financial contracts should have been theoretically either trading at infinity or at zero. That does not happen ever.
So, a new high or new low is just one of the things for one to run a basic filter over a large number of securities. In itself, it is not a trigger to buy or sell. Having said this, let’s look a little deeper.
In the last four-five days, global markets have been a bit celebratory on the idea that quantitative easing will come yet again, not that it has come for the first time or it will be the last time in today’s world. But if you look at in the perspective of just the last four-five days, the US long bond hasn’t made a new five-day low, and the dollar has not been coming down vis-à-vis the other currencies.
The S&P 500 has not come down, and even commodities that had been falling for the last 15-20 days have been making a temporary rounding bottom.
On a five-day timeframe, if all four asset classes are refusing to go down, at least one of them is wrong. As the resolution of the information whether quantitative easing is eventually coming or not, or how much of it has come, in either of the three scenarios, it’s a release of a pent-up emotion which is getting reflected by the irrationality of four asset classes showing signs of support in the last five days.
So, one of them is going to give in, if not two. From common sense that has prevailed for many years, S&P amongst all equity indices moves last. Nikkei is the second last to move.
Perhaps it may be recalled that in June or May last year, when Nikkei was trading close to 8300-8400, I had opportunity to discuss on your channel that before going below 8000, we are likely to see Nikkei get closer to 12,000.
We are only about 100 points away from there. At that time it seemed like an impossible call that a 50 percent rise can come in a dead market like Japan. Now, when it is there, the daily strength is making it mentally difficult for people to sell in. But when you look at a simple momentum indicator like an RSI divergence, price is continuing to make newer highs on Nikkei while momentum is making lower highs.
The same picture prevails on the S&P and on the DAX. So, looking at this one concrete piece of technical evidence on three major equity indices in the developed world, while such a clear cut indicator does not exist elsewhere on the dollar or otherwise, my anticipation would be that in maybe three-four days, these markets are going to slash around here and they are in the process of making a top.
Once 1516 or a lower closing is noticed on S&P - that’s where my technical system is going to trigger a thumping-on-the-table sell call on S&P. So far there is no evidence for me to say we go and buy, and a sell will come in next few days. Q: What would the takeaways of that be for the Indian context? Do you think the Nifty too will rise with global strength,  and will that present a shorting opportunity again on an index that has generally been much weaker than many of its global peers?
A: Broadly, equities will be moving together but they will have their own individuality. India’s Nifty has made a top already, while S&P is still in that process. Within that course, if after getting oversold on the Budget day and where despondency set in, people threw in the towel. There were record volumes and there was near consensus that no, we have lost the bull market. It is natural that there is some rebound happening.
Within this rebound, I would say around 5850 is one mental fulcrum at which I will inspect opportunities to go short again for short-term traders trying to play down to 5550.
Yet, if 5900 takes off - that’s where I will perhaps surrender and revisit my calculations on the Indian market, and maybe look for a retest of the old highs at 6100. I would place about 10 percent chance of that happening. So, one is waiting maybe perhaps in the day today or maybe early tomorrow. A short trade on Nifty should come in place again. Q: The indices are not the best reflection of it, but the problem with this market is what’s happened in the broader market space. What kind of technical indications do you get when you look at some of these indices, the midcaps, and whether that part of the market has already entered some kind of a bear patch?
A: In different time frames, we will have different outlooks. For the next one to two weeks, maybe three weeks, I am anticipating trading range behaviour between 5550 to about 5850. I place a stop loss of above 5900. Within that trading range, we went closer to the lower part and are right now rebounding back to the higher levels.
So, perhaps from 5850, we go down to 5550, maybe come back again to 5850 once more. Now, within the broader Nifty, if so far over the next three months, the doubts are more on a technical perspective for a slight down to 5200.
When I look back at the midcap index which kept on underperforming the Nifty, and is no longer showing those signs, so perhaps during this rebounding phase that can last for about three-four weeks of up and down several times during 5550-5800 - there maybe some tradable bullish bets available on the midcap space. But I would not say that the resumption of the bull market or any such major thing is yet signified on those charts. 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/