Mkt cues remain weak; go short, advises Sushil Kedia

The Indian equity benchmarks started the day meekly and its wonderful run over the last fortnight has somewhat come to a halt. Sushil Kedia, President of ATMA feels the last rally followed a certain pattern whereby there was a potential for a reversal day and that is exactly what is happening now.
 
Kedia further added that a trader must look at today's closing to formulate his trading strategy. Moreover, it is not favourable for a short-term trader to go long at the moment, he opined. Kedia is also not very hopeful about the Bank Nifty or the blue chip stocks now.

Besides, Kedia also noted that not only are the internal components of the Nifty weak and poor at the moment, the global markets too seem to be dealing with such woes. Here is the edited transcript of the interview on CNBC-TV18. Q: We have had a fantastic run this last fortnight, but today we are seeing a bit of pressure. How are things setup in the short-term technically?
A: Purely focusing on price patterns this fabulous run up of the last two odd weeks has seen a pattern which is simply nine consecutive price bars where each price bar closed higher than what it was four days ago. Such a pattern has a more than 70 percent chance of meeting with a reversal and we are exactly on a potential reversal day.
 
Along with that there is anxiety if at all, irrespective of whichever way it resolves. If today’s closing is lower than four days ago, that should be the trigger for a trader, which is about only 10 points away. Then there is no evidence left for a short-term trader to be carrying long zone and for those who are going to be taking a speculative view it can be the way I trade. I have taken about one-thirds of the short positions I would take in the current regime of the market and should the closing today be lower than four days ago or last Friday’s close, I am going to be plunging in the rest.
So you decide somewhere towards the last half an hour of the market how far you are from that number. I think irrespective of the news flow around, the sharp run up of the last two weeks and even a close to 1000 points plus run over the last three months will not provide a lot of juice for the bulls. It is not huge here and to just try to be religious about it I am going to be following the trend as a slogan shouting, 'Paisa lagta hai bazaar mein, majaak nahi hai'. I think this is a point where I am not going to be looking for longs. Even if this pattern fails I am not going to add new longs. Q: In case of a reversal, if that is confirmed what kind of levels of a pullback are you looking at?
A: The first level that comes to mind is the area from where we reversed. A natural point should be this pocket of reversal, 4-5 candles hereabout 5539. But, from many other studies which suggest that this gap is not so significant and gaps are mythologically very important, even that 5400 number odd and a similar kind of a structure for the short-term potential reversal structure of the price bars and the downside potential on the Bank Nifty still exists.
CNX-IT has already made that reversal, though the joker in the pack is no evidence yet on the weakening of the rupee which typically happens along with markets making a substantially clear move. So one stays hesitant and that is why one is adding things in pieces. One will be very nimble footed and if the closing today is coming out to be about 1 percent further from last Friday's close, I will wrap up my shorts. Q: Amongst the heavyweights or the blue chips which ones are looking the weakest?
A: The picture not only on the internal components of Nifty or sectors but, the global markets everywhere else also is extremely weak and poor. Right now, there is a unique global regime which I noticed this morning and in the very short run, correlations are particularly weak.
While there is a confirmed reversal down in Infosys, TCS is yet to make that and even then a darling of erstwhile years it is no longer comparable to these stocks as Satyam which keeps on moving in its own orbit in the IT sector. It is still looking strong. I think in that sense the focus today after a strong run on the clearer patterns on the indices is where one will like to focus and try to build out trade-ons and I do not think there is an evidence yet in place for Reliance to make a reversal or for that matter SBI, ICICI still looks to be strong.
It is not a clear-cut day where one goes and thumps the table and says I am going to be short 130 percent. It is perhaps time to be only 30 percent short. Q: What about the Bank Nifty? That has been a big driver of the Nifty’s rally over the last couple of weeks. Are you seeing any vulnerability there?
A: Yes, the exact same kind of pattern that I described on Nifty also exists on Bank Nifty and should this reversal pan out in line with Nifty, though typically there is too much volatility on Bank Nifty and it tends to run a little ahead of Nifty, this time they are absolutely in synchronization. So should this reversal work out, I am looking at about a 1000 point or roughly about 9.5-10 percent kind of a drop and I am not thumping the table yet. I might thump it towards the close of the day. Q: Some technical analysts have pointed out that the Shanghai Composite looks like it has bottomed out and is ready to move a phenomenal move from here technically. What do you see on those charts?
A: This is a very favourite chart. It has made a massive reversal already today jumping in quite a bit. If I can pull your attention to this chart, let us first look at the slightly longer run. China rose like anything from about 1690 level to 3500, it was a massive move which is explained by the level of relative amplitude. Let us not call it volatility and call it beta in comparison to the rest of the markets during the yoyo years leading into 2007.
This market ran ahead in a straight line ahead of all other markets and thereafter has had the longest correction undulating lower. Should this reversal pan out now, which I am delayed on, I was calling for that massive run to start right here. It only made a minor rally of about 400 points and further this leg down. There is a very, very high chance irrespective of the call on Nifty, S&P or other currency markets where this puzzle is that China might be a 100 percent mover from here. Around 100 percent return is possible and while that might happen during the large fall that I am still anticipating over the next one quarter, all across the globe, Nifty included or for next four-five months the rallies during that fall might see very, very strong moves in Shanghai Composite.
While the rest of the world falls, Shanghai Composite might keep on making a sideways correction. This is absolutely baffling. It does not add up. So we will go by how it goes. But as of now this looks like if I ignore the rest of the world this is the market to go and bet the ranch on.