Don't be misguided by rallies, mkt in downtrend: Sukhani

In an interview to CNBC-TV18, Sudarshan Sukhani, s2analytics.com shared his reading and outlook on market and specific stocks.

Below is the verbatim transcript of Sukhani's interview with CNBC-TV18. Q: What have you made of the rally, how do you think the Nifty is likely to trade, do you think it will build on the gains because the internals are looking a little depressing, foreign funds have sold almost Rs 1,200 crore on a day when the Sensex has rallied 400 points and the Nifty over a 100 points, anyway chartically how is the Nifty looking? A: We are in a downtrend. We have discussed this many times. That trend has not changed. What we are going to see is relief rallies, short covering build up from the upside with something of the sort that happened yesterday. We have seen this before. It doesn’t change the overall environment for the market. The charts are giving us a target of 4,900 and now we should be very lucky if we can get away with 5,000 or 4,900 on the downside. The trend is intact on the downside. These one-day rallies, two-day or even five-day rallies will come about. After all, corrections are part of the trending process. So yesterday’s rally is just that, markets are deeply oversold by some definition or the other and they bounced back assuming that we continue with this rally, that is a big assumption. There is a strong resistance level for the Nifty at 5,500 for the Bank Nifty at 9,600-9,700 levels and for the CNX-IT at immediate levels whereas 20-days moving average has come as a resistance. So all these indices tell us that if at all the rally continues, it will be very tepid and minor. Therefore, I don’t think except for intraday traders, the upside is tradeable. The trade is still to buy Puts, build up short positions if there is any other gain, any further gains. Q: Let me also get your view on Tata Steel. We have seen a fairly decent rally, is there a trading bounce over there, can one ride a little more on the stock? A: It seems so because Tata Steel’s charts have given us a V-shaped recovery. That is very rare and we should be very susceptive when we look at it. In case of Tata Steel, that recovery is holding on. It has come after a very deep and sharp decline. So, perhaps that V is not as suspect as it would have been earlier. It is certainly very difficult to say how much more, but Tata Steel remains in this choppy environment as we are likely to see today. Tata Steel remains a stock where you want to buy if the opportunity arises. Q: You have about equal number of buy and sell calls on your list. So, let us start off with that. You have a buy call on Tech Mahindra for the day? A: I have been explaining that Tech Mahindra has been the best of five stocks in the IT universe, the top five. It is certainly giving us a promise of higher levels ahead. It rallied, went through what was a normal correction for any good stock and resumed its rally yesterday. We should be seeing a build-up of that rally today and probably even new highs for this uptrend. All said and done, I would be upbeat on it. This market has been so choppy. It is not lending itself to day trading. The real money is going to come in positions. So, if I am bullish on Tech Mahindra, if I can get something out of a day trade, there’s no harm in that. But the bigger money would probably come if I were willing to carry it for a few days. Q: Are these banks looking vulnerable now? You have chosen to sell Federal Bank today? A: All the banks are looking vulnerable. This is probably the weakest of them for the day. The stock has fallen from Rs 470 to Rs 270 in just a few months and yesterday, it made a narrow range day that tells that a big decline may well be coming in. If it starts weak or becomes weak in the day, sell it, it is probably the weakest. However, generally all banks are weak after the one day rally. It doesn’t look as if that is going to be sustained. Disclosure: Sudarshan Sukhani has no holdings in the stocks discussed. _PAGEBREAK_ Q: What about Rural Electrification Corporation (REC)? A: Earlier in the week also we had a buy on REC. For some reason, REC and Power Finance Corporation (PFC) have done amazing things. I say amazing because financials are not in good shape, but both of them seems to be giving an impression that they are bottoming out. That process may take time but even if the Nifty were to fall to 5,000, these stocks could be distinct outperformers. REC is giving us signs of continued gains, it is standing at a resistance level in a choppy market, some stocks will cross resistance, REC could be easily one of them. I would be a long-term buyer in these stocks now. Every dip suggests a buying opportunity. Q: You like McLeod Russel? A: McLeod Russel is a short sell. It is at Rs 250 now and our levels for McLeod Russel is at Rs 230 on the downside but that is for the short-term trader. McLeod Russel is giving us a very big crack and it is giving us a sense that eventually, it should even reach Rs 200. The money in this choppy environment will be made if we build and maintain positions. There is no hurry. If one takes a short position, even if Rs 230 comes, get out from part of it or don’t get out, as this is going down much more. Q: You have a sell call on Zee Entertainment as well? A: That is the most worrying of the sell calls I have. Zee Entertainment has been an outperformer. From Rs 120, it has come to Rs 270. Look at what Sun Pharmaceuticals, Dr Reddy’s, even Tata Consultancy Services (TCS) is doing. Zee Entertainment is doing the same thing. It is cracking. It has given us clear signs of distribution and it has broken down from the Rs 240-245 strong support level. When good quality stocks start giving cracks and distribution patterns, there is a message that we are in the middle of a decline. This is not the end of the decline, it is the middle of a decline where even the best has started falling. Zee Entertainment is promising lower levels, probably again a positional trade is justified, day traders will get these levels on your screen but probably Rs 200 even sub-Rs 200. Q: If we do see this pullback enter into its second day, how would you trade it? A: If we see a gap-up and after the first half an hour that gap-up is sustained then for an intraday trader, there is the possibility of going long. It is an intraday trade but there is no harm, sometimes these trades will make money and we also understand the volatility that the market is going through. However, if a gap-up is available and sustained then look to take a long position and exit by the end of the day; do not carry it over the weekend. Q: Any specific levels that you would watch out? A: The market is giving clear signs of numbers. Anything below 5,400 is not a buy. If the Nifty is below 5,400, it is weaker than yesterday and we do not want to touch it also. We only want to buy in strength because this market is weak anyway. We do not want to try and test waters or catch falling knives. Q: How would you trade Ranbaxy Laboratories today? A: There is a difference between my strategy and the actual trade, Ranbaxy Laboratories is a buying opportunity. When it rallied, that stunning rally from its lows suggested that perhaps a downtrend is over. However, for two days now, it is very volatile. So, trade it only if there is a sense that markets are relatively quiet today then Ranbaxy Laboratories should be traded on the long side. _PAGEBREAK_ Q: What about Tata Steel, it has been a 30 percent jump up this month already, do you see more on the upside? A: Yes, I see more on the upside. We should not worry about 30 percent. It has fallen so much. That is not directly related but it is a good stock, it has given us a V-shaped recovery, I would be a buyer. However, metals are giving a sense of comfort so perhaps they are going to do their own thing in any case. All of this goes out of the window if the Nifty starts falling. I already told you we have to hold 5,400 for the long trade during the day. Q: Jaiprakash Associates went up for altogether different reasons but then after being bashed up so much? A: There is a day trade here on the long side. JP Associates has been in a trading range. We get a sense that it is going up and down but it is not doing anything, it is not going lower. It is finding strong support at Rs 28. It is not something one want to invest in or build a position but for a day trader, why not, it is a long opportunity and look to buy again with the Nifty caveat. Q: To compete the metals argument, Hindalco Industries also did reasonably well in the past few days especially yesterday, is there a trade there, a long trade? A: A far better chart than many of these once we have looked at because it is not volatile, it has been a one way street and it started rising slowly and yesterday it had a big gain day. Therefore, at Rs 104-105 it is on the verge of breaking resistance. There is a long trade. These long trades should be kept for a few days because intraday choppiness could kill but the target for Hindalco Industries could easily be all the way to Rs 120, worth going into. Q: What about HDFC, any trade there? A: It is a short sell. HDFC has been so weak and promising more weakness ahead. Most banks are not very attractive to buy into. HDFC is also not necessarily a part of the banking universe but one of the best in the non-banking financial companies (NBFCs), it is a short sell. Q: Give us your levels in Sesa Goa? A: Sesa Goa is a buying opportunity. It is a little more volatile than Hindalco Industries. I would be a buyer here. Something is going on as we already agreed on metals, the charts are very attractive. My picks would be Hindalco and then Sesa Goa but that is just a marginal difference.