Market heading to lower levels; target at 5500: Sukhani

In an interview to CNBC-TV18 technical analyst, Sudarshan Sukhani of s2analytics.com shared his reading on market and stocks across various sectors.

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Below is the verbatim transcript of Sukhani's interview with CNBC-TV18.

Q: Another disappointing day yesterday for the index. Have the levels on downside increased in terms of where the index could go in this downtrend?

A: It is not disappointing in the sense that what happened yesterday, after the lows were made in the morning the Nifty actually rallied 100 points. We were talking about selling in a rally so the market obliged us by moving almost a 100 points in the Nifty before the next decline came. In fact we built some short positions and that was discussed at 12 PM. So, the market do its own thing, sometimes it do it in different ways.

That rally part is over; I am explaining this because it means that we should not look forward to another one of these moves. It already gave us one yesterday. Market is now giving us lower levels. The first target for this decline is 5,500; I think it will come sooner or later.

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Yesterdays market action told us that a new pattern has been confirmed, a much larger bearish pattern. There is lot of distribution that was going on in the 5,800-5,700 even 6,000 area. That is now becoming very evident. Therefore, the pattern targets are down to 5,100. Obviously the market will do what they want, not necessary that the targets will be met but the roadmap is on the downside and with a lot of downside left.

Q: You have a sell call on IFCI?

A: IFCI is a stock, which goes on rumours. It is remarkable how people get trapped every time there is news or rumour of some kind. However, evidently the rumours are not working and helping. It has been falling; for the last 15 days it was in a trading range, which is surprising because the Nifty was falling all the time and yesterday it broke down from that range. Much lower levels are coming; this is probably a flag, which formed midway in a downtrend. IFCI is something that one would want to sell. It has a large lot size and that is something that small traders must understand. Therefore, the trade is to be short today and probably carry it or sell whenever possible.

Q: You are also selling Bharat Forge today?

A: Yes, lots of capital goods, engineering companies are in trouble, I mean the charts are in trouble. Bharat Forge has been in a consistent decline, it was showing some support that support has broken down completely yesterday. For the last two days midcaps are doing their own thing, the Nifty is not reflecting what is actually happening in the bigger market. Bharat Forge suggested that lower levels are coming, again this is a midpoint in an ongoing decline and it is very worrying.

Disclosure: Sudarshan Sukhani has no holdings in the stocks discussed.

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Q: The pharmaceutical stocks keep coming up in your buy list; you have a buy on Ipca Laboratories?

A: They are coming up because they are giving us bullish chart patterns. In fact I think if we were buying these pharma stocks in this falling market the long only trader would actually make money, midcap IT and pharma. That sometimes suggests how the market diverges. Ipca Laboratories is making a fairly decent cup and handle pattern, the handle is now ready, it is now breaking up. It is not just a day trade it is probably a positional trade. We want to go long and stay with it.

Q: You are buying Mahindra and Mahindra (M&M) today?

A: That is a high risk trade. M&M went down and touched the Rs 860-870 band, not once but thrice. Yesterday was the third instance. Therefore, a blue chip stock that goes down to support and then bounces back suggests that at least there maybe a relief rally; we are talking of intraday or a couple of days here. However, it is worth buying into. The Nifty could stay till today. If that happens some stocks will go up and M&M because of its bounce of support could be one of them. So, focus on the long side only.

Q: Crompton Greaves is back in your sell list?

A: Yes, it is back. As I said engineering and capital goods stocks are collapsing all over. It is linked to the economy and there are troubles all-around and that reflects on the charts.

Crompton Greaves made new lows in this decline. New lows by themselves justifies selling and because the entire sector is now in a bear market, there is a short sell here. Any small intraday rally, consider going short in it, cover it by the end of the day because there is a weekend.

Q: A long candidate, Wipro?

A: Wipro has been a favourite and for the last eight-ten days Wipro was going against the broad IT trend while Tata Consultancy Services (TCS) and HCL Technologies were making new highs and Wipro was falling. That would only be a correction. That correction was stemmed yesterday, a decent gain was seen. I think the correction is over and some rallies should appear. The charts are in an uptrend. Therefore, Wipro is a buying opportunity and among the IT stocks, Wipro is the preferred buy today.

Q: What will be the trading call on Nifty if we open around 5,650 levels?

A: I would expect today to be very choppy. Yesterday at least there was direction on one side, whichever side and we had two-three of them. Today even that direction should be missing. Therefore, I do not know whether the Nifty will be a short sell or so. It is not easy. However, the best approach would be to focus on stocks and step away from the Nifty. Position trades are being maintained even swing trades on the short side should be maintained but I cannot visualise an intraday trade.

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Q: In the event of any kind of pullback in the market, what are the levels on the Nifty, which will be very difficult to take out now on the way up?

A: For Nifty, the levels keep on coming down and that is a signs of a down trending market. We are now looking at 5,750. I do not see 5,750 being taken out on a closing basis easily.

Q: How would you trade ICICI Bank from the private sector space?

A: ICICI Bank is a short sell. It does not mean to sell today because one has to look for a rally to sell this. It has fallen and made new lows yesterday. However, the trade is still on the short side. An immediate target if Rs 980 for an intraday trader but it is about Rs 900 for somebody who is willing to carry a position.

Private sector banks are still holding out but we have already discussed the signs of distribution are clear so ICICI is going to lead on the way down.

Q: This is a blue chip, which a lot of people own in their portfolio, long-term investors but disturbing cracks are opening up here, Bajaj Auto?

A: It is a one-way decline. It was a one-way rally and we went on buying it and then it was like a frozen hand, which could not do anything as it started falling. It is very difficult to sell Bajaj Auto. Even now in a choppy market today although the stock is making new lows for this down move, I would be a buyer in it. It is not a good idea to sell short, a couple of these blue chips and Bajaj Auto is one of them. So, maybe yesterday’s big decline was a climactic event, some kind of a selling climax. I would bank on that and consider buying it.

Q: You think the run of DLF is done?

A: It is possible. I am little uncertain but for the day -- we are talking of only today -- for the day given the fact that there was a big decline yesterday, the same rules as Bajaj Auto perhaps it was a climax of some kind, selling climax. Therefore, for the day trader, it is easy to buy DLF looking at some kind of relief rally. However, on a larger picture it is becoming difficult.

Q: Would you trade IVRCL?

A: IVRCL is at Rs 20 and it will go lower. I do not know how much lower but it is a short sell. It is easy to talk about it but how can one sell a stock, which has already fallen to Rs 20, it is not easy. However, the trend is down so one should not even think of buying it.

Q: How would you trade SKS Microfinance?

A: I would be a buyer here. It rallied from Rs 60 to Rs 200. When such rally is seen then one has to expect a correction. However, the trend seems to be intact. So, we are probably buying at the lows of a correction. I would be a buyer here. This is not a day trade. One should have the patience to be a position trader. The trade is to be long here.

Q: Larsen and Toubro (L&T) had a pullback a few days back close to Rs 1,500 but it looks like it is resuming its downside again?

A: It is. The only context is it has fallen so much; maybe today it will give a relief rally. However, for the day the trade is – if Rs 1,450-1,500 level was a support of some kind maybe yesterday’s big decline was a climactic event like Bajaj Auto so the trader for the day should be looking to go long in it. It is just a one day call.