More correction seen; sell on rallies, buy on dips: Sukhani

In an interview to CNBC-TV18 technical analyst, Sudarshan Sukhani of s2analytics.com shared his reading and outlook on the market.

Also read: Cash out of FMCG, banks; rupee key to FII flows says Tirthankar Patnaik of Religare Below is the verbatim transcript of Sukhani's interview with CNBC-TV18: Q: Give us a word on the Nifty? A: The Nifty is now entering choppy territory and the SGX gains that we are seeing are not going to change the short-term trend. The short-term trend is down, the chances are that we have these up and down days but that does not change the scenario. I will still be a seller on any rally. We have already seen resistance levels at 6,100. A decisive close above that would change my scenario. That could well happen. There is no rush. The other side of course is a continued breakdown, which may not happen today but which has a strong possibility of occurring soon enough. So trading ranges create these mood swings, one should take care of that. I am not overly bullish now. The big losses we saw have a clear message to us that this market is not going to 6,300 in a hurry. So one should just trade the extreme sell rallies, buy these dips, it is not easy but that is the way to go. Q: You have chosen some midcap stocks on the sell side today starting with Hexaware Technologies? A: Hexaware Technologies has a very disappointing chart. It simply finished a small rally -- and we called a short earlier also -- and it is now on the verge of breaking down. It is doing something quite opposite of what the CNX-IT is now doing. So, not only is it underperforming in its sector - the charts are breaking down - it is a distinct underperformer against the Nifty, everything is going wrong with it. It is a short sell. I would say not only an intraday short sell, Hexaware Technologies is a positional short sell becuase intraday a low priced share may or may not give us big moves but over a period of time it will. Q: You continue to maintain your short stance on public sector undertaking (PSU) banks, today it is Allahabad Bank? A: Yes, I am fairly sanguine on that. Allahabad Bank had three very narrow range days. It is breaking out. This 30-35 point rally on the SGX Nifty is only an opening rally. We do not know how the markets will behave during the day and tomorrow and day after. So PSU banks are not a buying opportunity. Allahabad Bank at this current level of Rs 122-123 is just ready to break a significant support level. I would be bearish. Disclosures: Sudarshan Sukhani does not have holdings in any stocks discussed. _PAGEBREAK_ Q: You are buying Glenmark Pharma from the pharmaceutical space? A: Yes and Glenmark Pharma is an excellent chart, it is making new highs. It had two choppy days before yesterday. That was because when a stock starts moving into unchartered territory, there is a certain amount of nervousness that is reasonable. Again that nervousness was overcome and it has started moving very solidly yesterday. That gain should have followed through today. So, strong stocks are going to get rewarded in this market. That is the scenario we have seen. Glenmark Pharma is an excellent buying opportunity. It is a day trade also. Q: You are also long in Zee Entertainment Enterprises? A: Yes. I have been asking people to buy earlier also in this show when it was correcting and the sense was that the correction is over. It is now ready to make these new highs. We cannot ignore that. The corrections have all been bought in. Every deep correction, every shallow correction was bought in. So smart money is buying, we have to go with that. Today is a very good day to go for Zee Entertainment Enterprises. First, the media sector itself is cheerful and secondly this is outperforming everything. So, be long and I would say that maintain part of your positions as a carry over trade. No need to get out in a hurry. Q: You are not very optimistic on Chambal Fertilisers and Chemicals? A: That is a horrible chart. It is now breaking down, it is going to make new lows and who knows where it will go. Earlier also we have suggested shorting Chambal Fertilisers and Chemicals and prices have come down and now it seems that they are going in for a major decline. It is a positional short and because it is sometimes volatile, it can also give us a day trade reasonable enough to take it. Large lot size in Chambal Fertilisers and Chemicals deserves attention. So sell for a short-term trade and if you want, maintain it. Q: You have a buy on Aditya Birla Nuvo today? A: That is a very nice chart – not of course in the same form but it is doing something similar to what Reliance Communications was doing. It had two-three wide range days with big gains, then it has been consolidating for the last two days, that consolidation should almost certainly breakout on the upside. I would be a buyer here on every consolidation, every dip, it is a good intraday trade, a good trade for the next two-three days on the long side.
_PAGEBREAK_ Q: What kind of rough markers are you placing on the Nifty given the point you were making about uncertainty now in terms of which direction it could move in?
A: We have resistance at 6,100 and that needs to be crossed not just intraday or closing but with some decision for us to say that the uptrend has resumed. That could well happen although I have some doubts as of now.
On a lower end, we do not have a support number. We just have to work with 5,970. That is the initial temporary support. I assume that will give way and a larger range will probably may come into making. So my view seems to be expecting 5,970 to breakdown and some kind of a lower level to emerge where real support will come. Q: Do you think either the CNX-IT or the Bank Nifty are showing signs that they could take on the mantle of leadership now?
A: The IT index is showing signs that it could do better and certainly it is likely to outperform. I am not sure whether IT has enough weightage to give leadership.
The bank index is not doing that. That is what will provide leadership if this market goes up. The bank index was deeply overbought. It is now likely to go through a strong correction.
So, I do not see ITC and Hindustan Unilever Ltd (HUL) providing that leadership. It is very difficult for me to imagine now what the Nifty will do. Q: Among the side counters, pharmaceuticals have been doing very well, what looks like the best charts to back from that space?
A: There are a lot of choices in pharmaceutical sector. I would say Divis Laboratories is an excellent chart. It is just willing to go make new highs. That is a stock we should be looking at.
So is Ranbaxy Laboratories. Yesterday’s Ranbaxy Laboratories’ price performance was remarkable, a big decline and finally a very strong close. So a new uptrend seems to be starting there.
This is just two of them. I would say that the entire sector essentially is cheerful. We should not worry about valuations. The strong momentum is there. Q: We were talking about these gold finance companies but yesterday the entire gems and jewellery bracket was under pressure, anything that stands out over there for you?
A: Shrenuj and Company has seen a remarkable rally. That rally is probably not over but this is not a time to buy it. We have to wait, the corrections are just starting. They are going to be much deeper than we expect.
While, it is not easy to determine prices of gems because gold is much more liquid, the feedback is that there is a lot of correction going on in that market also. So Shrenuj and Company correction should be deeper. At some point, it will become a buy. Q: Another star from yesterday, although it is not actively traded, is Eicher Motors?
A: It is a wonderful share to be in. It does not look back and it is doing what Hero Motocorp was doing when it was at Rs 1,000. Then Hero Motocorp went all the way to Rs 2,500. It is in the same position. It is not a day trade. You have to buy it and then hold it. Here, I do not even see the risk of buying higher. If you have bought higher on a breakout and wait for a month or so, you are going to get better prices. It is an excellent stock. Q: Have you been a bit disappointed by the price action in Reliance Industries Ltd (RIL) because at one point at Rs 825 it looked like it was breaking out but it has not done that, it has just been hovering around Rs 800?
A: When it was Rs 825, my targets were around Rs 840. They were very modest. It did not even reach Rs 840, it collapsed from there.
RIL is now playing its part as a bear market set up. There is nothing bullish in it. So the disappointment is there because when it was going at Rs 950 then it was promising a lot. Now it is on the verge of a breakdown.
If RIL breaks down, first its downside targets would be lower than even Rs 700 and secondly, it would have a major effect on the Nifty.
RIL is a matter for worry if you are bullish.