Sell if Nifty sees 5740; CNX IT may test 5200: Jai Bala

In an interview to CNBC-TV18, Jai Bala, chief market technician, Cashthechaos.com shared his view on the market and stocks across various sectors.

Also Read: Infosys a 'buy', says Motilal Oswal, sets Rs 2700 target Below is the verbatim transcript of his interview on CNBC-TV18 Q: What lies ahead for the market? An attempted pullback with 5500 as a base or the market will slice through that support level? A: The markets’ recent low is not a very strong support. I would have liked the market to touch somewhere around 5440. It would have been a better place for the market to launch pullback because that’s a strong support. The markets will continue to be volatile and will do a lot of back and forth. If the bounce comes back, it will be under 5740-5770 and would again be a selling opportunity for the market. So, look to trade the market on the short side on a good sizable pullback. Q: IT was a polar opposite on Friday in terms of how those stocks moved. How did they look to you and aside from Infosys, what else looks vulnerable from that pocket? A: I assumed that IT had one more last leg before they topped out. I was proved wrong by the market. I expected CNX IT index to hold above 6460. The fact that it has come below that level tells us that the move from the 2012 lows is corrective in nature. If not, the entire move from the 2011 lows itself is corrective. In the medium term which is something beyond six months, we are looking at about 5200 on the CNX IT index and maybe even 4800. At the moment, I don’t see any signs of vulnerability in the front line IT stocks but have assumed Tata Consultancy Services (TCS) to scale top somewhere close to Rs 1,700 before topping out. If you look at HCL Tech, the fact that it broke Rs 766 is a bit more vulnerable, so you have got to be a bit cautious here. If TCS were to touch Rs 1,400 even on intraday basis, the entire run up is over and even that will start a larger correction.

Q: Is there any upmove in the market that needs to be shorted, what are the eventual targets you are looking at during the course of the May series? A: May will turn out to be disastrous for the market even on a global perspective. If we see a sizable rally starting this week, people will start coming back to the market and say there is value and it will start bottoming out. But that will not be the case. If you look at gold, unless you would be a market technician, the chance that you have got it right is very low or non existent. The message from gold carries a lot of meaning for the entire global market. People who were talking about inflation coming in and that’s going to take markets much higher, it has been proven that that’s not the case. Gold has cracked the major support at USD 1,520 per ounce and is going much lower. Although, you will see short term snap back coming in gold, people have got the entire market wrong. In 1998 it was the NASDAQ, in 2005-06 it was the housing bubble, in 2008 it was crude, in 2007-08 it was the BRIC countries, in 2011 it was gold and silver. Now, in 2013, it is going to be Philippines, Thailand, Indonesia and the Dow, these are the bubbles that are going up. All these bubbles are going to end up very badly. It now cheers but very soon it is going to be tears and that’s what I am expecting the market to do in the series of May, be it for the global markets or for the Indian market. Q: Market in the near term is looking extremely oversold. If you were playing for a bounce, what kind of levels do you think the Nifty could bounce back to assuming you would buy around this level? What would you play it up to? A: I wouldn’t bet on this market going much beyond 5800. But if does come to higher than 5800, I will go short on the market. You have to be careful if you are playing long on this market because you have to be conscious that you are playing the counter trend rallies. Counter trend rallies can end without warnings, so that is the downside if you are going to play the markets here. It is better to play the market long through options rather than taking cash positions. It will automatically do you risk control because the downside is very limited and upside is theoretically unlimited and so you have inbuilt risk management level. Therefore, it is better to play long on the market using options. Q: What would you do with the Bank Nifty that has shown some signs of relative strength over the last few days? A: The problem with the Bank Nifty is that the structure is very bad. It has overlapped in the February 2012 highs. The declines from the January highs have been in five steps. The market declined in five steps. The complete process is always the part of a bigger decline. So, the bounce back from here is likely to get sold into. Though in the extreme short term it is doing well, Bank Nifty will come under pressure at about 11,750-11,800. If it gets extended, maybe a maximum of 12,100, it will be an excellent selling opportunity.