Too late to be a bull, bears having early fun: Sushil Kedia

However, most of the largecap names are clearly broken except for Reliance Industries. I would classify that as stock rotations or sector rotations would happen perhaps Reliance is lagging the move. The IT sector went down heavily, the auto sector has broken this up trend line; the banks have broken it through the last week. So it is too late to be a bull so to say and the bears are having some early fun.Latha: Where might the odds lie? Are the odds lying with the bulls or with the bears at this point of time? Is it 8,000 before we get to the new highs of 9,100 or thereabouts?

A: Let me put it very briefly. If you were to do returns distribution of a certain range, the range really started from the Budget day’s lows, and if you take a two standard deviation spread across the mean line, that would give you 95 percent confidence interval from the way I calculated. My 95 percent confidence interval on the Nifty Futures right now is slightly below 8,600 to 9,030 levels. If I were to go to 99 percent confidence level which is three standard deviations, that in an extreme move, that on the upper side it is still capped at 9,030 and can go all the way down to 8,200.

Now, this 99, 95 is 90 is something that requires a deeper understanding. So broadly speaking, for the foreseeable future of next week to two weeks, we are currently on the lower side of the range which 8,580 to say extreme 9,030. But in this two weeks time period, I would still say as Ashwani Gujral was pointing out, 8,800 or 8,790 from where market took multiple supports before making this final high, is the line of struggle, line of control for very short-term trading.

And allow me to mix a bit of quantitative stuff which I lean heavily on a person called Kora Reddy. He tweets quite extensively on very unique analysis. So he has been smoking a pipe since last evening that 25 occasions Nifty has fallen heavily on Monday – heavy fall is greater than 1 percent without filling up the gap – and 17 occasions, over the next one week, Nifty has closed positive. Now that is visible on the charts also, the markets were oversold, there was a divergence in momentum yesterday. It was screaming closer shorts. So, perhaps, 8,800 being the fulcrum and short-term trading is spread between 8,600 and 9,000 right now.

Latha: How would you trade the Bank Nifty? Is there a greater short opportunity there or is that also a buy on dips?

A: No, I am not classifying this market as a buy on dips. It has clearly come to a point of sell on rallies. However, if it goes past 9,030 on the Nifty then the stance will need to be changed and it does not mean that one will rush in immediately to buy in. Then, one will start buying the dips. But on the Bank Nifty, a 1,000 point jump from lower levels, after it has fallen already so much is nothing going to be unusual and perhaps it can happen.

Anuj: You spoke about Reliance earlier. What are the charts of Reliance itself indicating because that is an important stock for the market?

A: I was positioning for a short on Reliance over the last couple of days that upper resistance line got taken out yesterday and the stops got hit. However, the closing patter was that of a gravestone doji and that needs to be confirmed today with a further lower close which is not happening. So, Reliance is actually not in the sense of a bull market pattern that over the next several years it will create very high large returns but it is more like a four-five years of sideways trading band which is very wide and we are on the upper end of that band right now and the structure is that of very much of a rallying stock and give a percentage or two for a further stop, one is still keen to find a short trade. If it works out, I will not be shocked if Reliance drops to Rs 800 before it goes to Rs 1,200. Now, these sound like outliers and extremes, but in real life, you keep doing them with a pinch of salt.

Disclosure: Reliance Industries owns Network 18 that publishes Moneycontrol.com

Latha: I wanted to know more about IT stocks. Have they bottomed at all?

A: They are getting closer to a bottom obviously, far ahead of all other sectors, they have fallen so much. The reduction in the momentum of fall is visible. That is a divergence has begun. Perhaps, I would say that it would be pre-emptive to say that it is the bottom now. It is possible that they might rally much more feebly than others, retest this bottom or go slightly lower than that. And if a large fall on Nifty develops of about 10 percent, if it goes to 8,200, for the short sellers, the cream is not left any more in the IT stocks. It is too late to be a bear on IT stocks and definitely one is not looking to be a bull on it right now.

Latha: This morning, Donald Trump began his debate by saying that the asset markets are in a big fat ugly bubble - that is pre-election rhetoric, but are your charts indicating that equity markets are in any risk at all?

A: There are two three different types of segments in which you can club the global equity markets. Say within the markets, that usually used to be clubbed together the German DAX, FTSE and the Standard and Poor (S&P) 500. The DAX seems to clearly have been topped out; it is forming a lower top. The FTSE is perhaps in the process of forming a top. The S&P 500 remains that aphrodisiac on which every other market is getting driven but is looking toppy, but leaving that aside, let us lean on one commonsense and one piece from Kora Reddy, I am somehow impressed with him a lot, he does good work. Say eight-nine years of massive scorching returns, you do not need to be a genius, you do not need to be Donald Trump to know that this kind of massive aggregation of positive returns is likely to find lukewarm returns if not negative returns over the next three-four years.

And if we are looking at an interesting piece of statistic found by Kora, odd numbered US presidents do not create positive returns on S&P 500. There are substantially negative returns. This may be coinciding with the business cycle. So, China has been in its own world. Maybe it will form a bottom over the next six months and who knows, a market like India may not fall as much as these others. S&P might drop by 20-25 percent, India drops only 10 percent. So, that is where I would tilt my hat this morning.