Nifty has support at 5640, says Barclays

The Indian market has taken a breather, after the recent rally. In an interview to CNBC-TV18, Dhiren Sarin, technical analyst, Barclays says the Nifty is likely to move towards 6,000 by the year-end. "We had mentioned last time around 5,640. Interestingly that’s actually support now," he adds.

In the near-term, he sees a little bit of a pullback in US equities. "If you see the bigger picture, we don’t think there is much damage to this greater uptrend; 1,395 is good support for the S&P 500," he adds.

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Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.

Q: We have seen consolidation in global markets over the last couple of weeks. What’s the next move in October for the big market like the S&P or the Dow?

A: For the S&P and Dow, Friday’s price action was a little bit disappointing. We had good numbers come out and the market failed to take out its YTD peaks at around 1,475 on the S&P 500.

In the near-term, we might be in a bit of a shaky phase, a little bit of a pullback in US equities. But if you see the bigger picture, we don’t think there is much damage to this greater uptrend; 1,395 is good support for the S&P 500. While it is above there, we are still looking towards 1500 in the coming months. October itself might be a little bit shaky in the next week or two, but beyond that, we have clear skies above.

Q: Would you be looking to buy the dips as a trading strategy?

A: That’s right. Since the birth of the bull trend, four months ago, we have seen steady moves higher and then pullbacks which have provided good buying opportunities. So, we will continue to stick with that script. If we do get a dip towards 1,420-1,400, I think it would present a good buying opportunity.

Q: Are you seeing this as a mature phase of the rally which started a few months back or do you think there is a lot of upside left in the move that started four months back?

A: I think the phase is not quite matured just yet. A more mature phase would be if the S&P starts to rise along with US yields rising then the market can actually take this bullish move with ease. I think the speculative positioning we are seeing in the small cap index, in the Russell 2000 is just turning more bullish. So it is still very early stages.

We have sentiment indicators. That’s not excessively bullish either. So, we are not at a mature phase. We are somewhere sort of in a mid-cycle phase. We probably see gains into year-end, but in 2013 we expect this rise to become more mature and would start to look for top then.

Q: What do you see in the currency complex, both for the euro-dollar and closer home to the dollar-rupee in India?

A: Euro-dollar has been quite a good story, despite all the bearish news coming out of Spain. If you look at Spanish yields, they are holding below 6.10-6.15 percent, those were breakdown levels from September. That’s quite an encouraging fact here.

Euro-dollar itself is also quite stable around 1.30. I think this has given a little bit of room for the INR to appreciate as we have seen in recent weeks, a pretty strong move already seen. So, in the near-term, I think markets might just stabilise and correct here. But as long as dollar-INR stays below 53.15-53.60 area, we can still see a push towards 50 or just above 50.

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Q: We have had a good run in the Nifty. What is the chart telling you there?

A: The Nifty met some of our targets. We had mentioned last time around 5,640. Interestingly that’s actually support now. So, we are thinking we could get a pullback here. We are approaching some big psychological hurdles both in the Nifty and Sensex at 6,000 and 20,000 respectively, unlikely that this gives way without a little bit of a fight.

As long as the Nifty is above 5,640-5,550 as well, those are good buy zones just like for the S&P 500 around 1,420-1,400 as previously mentioned. Ultimately, I think pullbacks will be quite healthy for these bull markets.

Q: Do you see 6,000 being taken out sometime in the next couple of months here?

A: In the next couple of months. I think not before a little bit of a correction. But do bear in mind October is actually one of the most bearish months for the Sensex in India. So, we are a little bit cautious this month. But I think into year-end there is a chance that we get towards 6,000 and start to push above it.

Q: Any thoughts on gold and how you would approach the mild correction?

A: Yes, the gold is another market just like the S&P etc. which are showing some signs of fatigue. The USD 1,803 level, which is highest from late last year, continues to be a cap. We are seeing some loss in momentum to the top side. As we run stocks to the downside, it gets down towards USD 1,750, but thereafter I think gold stabilizes and it still remains a largely bullish story.

Q: Of all the charts that you track globally, which ones would you say are the most bullish ones at this point to track from a tactical perspective?

A: I think there are some good looking charts out there, something like the Korean Won, the Asia Dollar Index. I think Asian currencies are still on a bullish standing largely, not all of them, but there are some standouts.

If you look at stock markets in Malaysia, Indonesia, Philippines, Thailand, these are markets that are making all-time highs. So, there is clearly some euphoria there, there is some optimism. It is just that this has not become a story of bullish contagion everywhere just yet.

Q: Which would you say classify as the weakest looking charts now?

A: Some of the weaker looking ones are base metals. If you look at copper and the likes of led and silver near-term also looks a little bit vulnerable. In the near-term, there are some opportunities here where you see a leg lower in base metals, but again I don’t think that is sustainable. Ultimately the dollar is still largely weak. That ultimately is positive for assets. So, we would look at any weakness as buying opportunities.

Q: No significant chances of a flare-up in the CBOE-VIX that you can see through the next few weeks?

A: The VIX has been quite low off-late. A lot of people assume that a low VIX is actually a bearish sign for equity markets because there is possibility of a flare-up, but we do know that the VIX can stay low for months. We saw this last year and the year before last.

We are not particularly concerned about these low levels. There might be a little bit of an uptick as S&P pulls back, but again I don’t think it is going to be a sign that we should be worried about just yet.