Go long on August series; avoid FMCG counter: Jai Bala

Jai Bala, chief market technician at Cashthechaos.com, says that the European, Italian and Spanish markets have implemented short selling band, again repeated exactly at the same time in 2011.

At this point it makes sense to buy 4,900 put option of the August series because the risk is very low and if it were to happen like 2011 and that will provide 10 times reward potentials. A sensible strategy would be to go long on August series 4900 put option.
FMCG stocks are hitting their maximum upside potential or minimum upside is left. So wait for the weakness to set in maybe in few weeks or months. It is better to stay away from the FMCG counter. Below is the edited transcript of his interview to CNBC-TV18. Q: What are your targets for the Nifty in the August series and what would be a good strategy to implement at the start of the series?
A: If you analyse the global picture, the peak for the Dow Jones happened on May 1, 2011 and this year it happened on May 2, 2012.
The European, Italian and Spanish markets have implemented short selling band, again repeated exactly at the same time in 2011. The India Volatility Index (VIX) is almost at the same level that it was in July 2011. In August it was a waterfall decline. It looks like all the pieces are in place for similar decline now.
One has to be prepared for such an event, if it happens. At this point it makes sense to buy 4,900 put of the August series because the risk is very low and if it were to happen like 2011 that will provide 10 times reward potentials. A sensible strategy would be to go long on August series 4900 put option. Q: Between Wipro and Infosys that have fallen down about 12-15% this series which ones would you buy now?
A: I won't buy anything at this point in time. One has to use defensive strategy. From the frontline IT sector, TCS was strong but even that started to cave-in. Currently, it makes no sense to buy any stock. There is a potential for – the market is following the template of 2011. Other than pharma or some defensives, I won't venture buying anything. Q: What kind of targets do you have on the way down if you are bearish on the Nifty and the Bank Nifty for the August series?
A: There is a possibility that the market could dropdown. The medium-term target for Nifty is 4,200 to 3,800. In the short-term, the market holding 4,900 is going to be very important. If the market gives away 4,900 in the short-term, then short to medium-term will decline very sharply. Q: You would buy Lupin today?
A: Lupin is breaking out its fifth wave and the move from this year's low is projecting a target of Rs 670. But there is minor resistance near Rs 630. One can go long at current levels, take partial profits near Rs 630 and aim for Rs 670, but place a closing stop loss of Rs 535-540. Q: Do any of the charts of FMCG like Hindustan Unilever (HUL), ITC and Marico look like you could hide there?
A: The FMCG stocks are meeting their ending wave targets, there is no point to invest there. But if you have to put in then it has to reduce to half to 1/3rd of your normal position size. The chart of Jubilant Foodworks is a bit dicey. It has a small possibility of making one last new high and then rolling over to the bearish side. So the picture is quite dicey for the FMCG stocks. It's better to stick to pharmaceutical.

Q: How would you trade in HUL, ITC and Marico stocks?
A: Definitely, do not short and if you are long then trail with close stop losses. FMCG stocks are hitting their maximum upside potential or minimum upside is left.
So, stay in put if you are long, but do not create fresh long positions neither you have to short; correction happen in stages. So wait for the weakness to set in maybe in few weeks or months. It is better to stay away from the FMCG counter.
Q: How does the chart of Crompton Greaves looks after the breakdown post results?
A: The charts are looking ugly for Crompton Greaves. It had put in a decent base around the lows it made around Rs 100 odd, but that is not going to be the case.
There is a strong possibility that the stock will touch double digit. In three to six months it will touch Rs 75-77.  If you look at the stock holding pattern; a big stock holder has been holding the stock for long time and unless this big holder capitulates, I do not think one will see a bottom for this stock.
Q: What do you see for the private banks?
A: There is a huge gap between the performance of private banks and the public sector banks and that’s exactly how it's panned out but weakness has also started creeping into private sector banks.
At this point, HDFC is quite strong and has not given up its strength and even the momentum is not dropping. Anybody looking to position themselves long in the banking sector then HDFC and Kotak Mahindra Bank might be the best place to put money in. But even here you have to position yourself at a much lower capitalized levels.
  Watch for more....