Sensex may dip to 22500 by monsoon, jump to 30k by Dec: Pro

With Indian equities becoming increasingly volatile recently, technical analyst Vivek Patil today reiterated his April call that the Sensex was headed to about 22,500 levels by monsoon and may bounce back to about 30,000 by the yearend.

Patil spoke to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy in an interview.

According to Patil, who runs his own technical-analysis website and provides consulting services to brokerages such as ICICI Direct, the market continues to trade with the bearish lower-top-lower-bottom formation, which will result in its downtrend continuing.

Traders should look to stay away from stocks that have outperformed the most in the rally of the past one year – such as pharmaceuticals or mid and small caps, he said.

“Once it has bottomed out, one should look at new, sunrise sectors that will lead the jump back to 30,000,” Patil added.

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Vivek Patil

Proprietor|Vivekpatil.com

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Transcript of the interview on CNBC-TV18.

Latha: The market is making some stomach-churning moves. What is the sense you are getting? Does the Nifty put a floor to itself at 8,100 or having flattered to deceive, we are going to see lower lows?

A: The last time I spoke, I projected 22,500 for Sensex and 6,750 for Nifty as my target for the year and I was expecting the Sensex to jump back to 30,000 levels in the same year. There was some logic behind it that I explained.

Regarding today’s action, from the March top, the Sensex has fallen 2,700 points and the Nifty 850 points. Then it rallied for 10 days and then again dropped by a similar amount: 2,700 points for Sensex and 850 points for Nifty.

When two falls are equal, there may be some buyers looking at opportunities thinking the bears did some selling in the first fall and second fall is now equal. Now, after rallying for a couple of days, last Friday and Monday, the market could not make a higher high and that is the reason why it fell today. It missed creating a higher high by just 60 points (Sensex) and 23 points (Nifty).

To expect a bottom here, we either make a base formation because this a nice falling channel and we are at its lower end. If you make a base here, it is good. We can go to the upper end of the channel. But, if we do not, and break down, then the lower-top-lower-bottom formation remains. As long as you do not make a higher-top-higher-bottom-formation, the market will not recover. And my targets are intact for the year.

Sonia: Your target is 6,750 on the Nifty by the yearend?

A: That is right.

Sonia: What are the heavyweights that could lead there?

A: Everything, when the markets fall there is nothing like heavyweights. Everything falls. The heavyweights fall more. The leaders that the previous market rally will fall more. I mentioned last time too, pharma can lose more. The broader market was actually outperforming the Sensex, so it can lose more.

Latha: I just want a more near term advice? Would traders be advised therefore to continue to short till you watch whether the market is able to hold the bottle? Is there a shorting position for the day to be carried forward tomorrow?

A: That would be the logical conclusion as long as the rallies are making lower tops -- every rally has to be shorted. The thing is, if you recover back to 30,000 from here, it is only 9 percent. However, if you fall to 22,500 and then recover, it will be 35 percent so that will be more beneficial. I am expecting this: fall to 22,500 and then recovery back to 30,000 plus levels.

Latha: Is there a time element also for this number?

A: If it drops by monsoon, it has got six months to recover back to 30,000. That is the trajectory I was discussing last time on the program. We are completing a year since election results, but the dollar index has already broken the May 16 high. That means that the euphoria, which was there is no more. If the takers of the euphoria -- mainly FIIs -- turn negative, the market would find it difficult to form a base here.

Sonia: The big fall has taken place in the Bank Nifty today, down 3 percent. From this 17,600 level how much do you think the Bank Nifty could head lower to say in the next two to three months?

A: I am projecting it will go back to the previous highs [by the yearend]. If you look at the yearly charts of the last four years, if you join the bottom of 2012 and 2013 with 2014 and 2015 bottoms, the trajectory of 22,500.

If you see the trajectories between 1988 and 1992 or 2003 and 2007, all those trajectories had bull candles inside them. So, I am assuming that it will be a bull candle for the year. Having a bull candle means you have to recover back to January levels or March highs.

Latha: Within that if you could give us the relative winners or the relative losers. A mutual fund manager has to reduce his losses, he cannot avoid the fall altogether so if he has to outperform the Sensex then what may be the place to hide?

A: When the market comes down to 22,500 the new sectors, sunrise sectors, pharma, etc they may rise along with the market. Banks also may rise but their rise may be limited because they already saw great rally earlier. The smallcap and midcap category too you can look at, especially the stocks which are still 70-80 percent below their peak values. So those will be the candidates for multibaggers.