Go short on market with Nifty 6,160 stop loss: Bala

"Market has been going up on a very poor breadth, thus I have been expecting the market to resolve bearishly for the medium-term to long-term picture", says Jai Bala of cashthechaos.com in an interview to CNBC-TV-18. In February market was making lots of new highs, during July-August it came down and during December-January the net new highs have been the least, he added.

Also read: Avoid trading Bank Nifty ahead of RBI policy: Sukhani He believes that patterns are shaping in the long-term charts of the Nifty. 6,130 to 6,160 is going to be very important pattern in terms of price point. Patterns need not complete and can continue moving up. Thus, Bala goes short on the market and places the stop loss at 6,160 on the Nifty. Below is the edited transcript of his interview to CNBC-TV18 Q: It has been a bit on again, off again for the market, how is it looking for the index first? A: I have been expecting the market to resolve bearishly for the medium-term to long-term picture. The reason is that the market has been going up on a very poor breadth. That is not a qualitative sign for a bullish market. Also the net monthly highs and the net monthly lows tell you another picture about the breadth. The market in February was making lots of new highs, during July-August it came down and during December-January the net new highs have been pathetic to say the least. When one had that mid-cap carnage on the other day, the breadth has turned much negative here. So, this is telling us the quality of this up move. It important to focus that the patterns are shaping in the long-term charts of the Nifty. The monthly chart on the Nifty tells that the decline from 2010 lows to 4,530. Then the corresponding moves are in a perfect harmonic relationship. For this move to end, it is something like 30 points above the high it made in January. So, we can give about half to one percent error for this market to finish whether earlier or ahead of that move. Implication of this pattern is that the market is telling that it is going to go well below the lows it made in December 2011. For this kind of massive pattern to take place, it needs support for the global markets, it cannot occur in isolation. If one looks at the DAX, the bearish butterfly in technical terms, its pattern were to pan out. It will be a coordinated decline for the rest of the world. In terms of a price point, it is telling that 6,130 to 6,160 is going to be very important pattern. Patterns are not fatalistic, they need not complete and they can continue to keep moving up. So, trading has two aspects, one is analysis part. We have seen the analysis part. The next part is the trading and execution part. There one needs to take a quantified, low risks entry point. I take regular small risks and don’t mind the psychology, if I am getting stopped out. So, here is the time where I can place a stop about 6,160 on the Nifty and try to go short on the market. Q: Would you take a positional call on the market for this series because it has got a lot of big events including the budget doing? A: From a statistics point of view, if one looks at the markets from 1995, it has been most compressed since 1995. This is what one of my star trader told me. Also there is a possibility that the market is going to burst one way or the other. It could be any side, up or down. Considering the fact that the market breadth is deteriorating and the momentum is diverging negatively from the price action. It presents a low-risk opportunity to take a positional call on the short side. Alternately, what one can do if they look at the calls and puts which are just about 3 per cent on either side of the current position, it presents a juicy opportunity to do a strangle on the market. Q: You have got a strategy on State Bank of India today, are you selling that stock? A: That’s right. It is just a low-risk selling opportunity. It could get stopped out today. I feel that SBI registered a lower high yesterday. It came down from Rs 2,533. So, given the fact that if the risk is just 1.5-2 per cent and a probability it could even decline to Rs 2,200. Then I am going ahead and taking the risk. I will place a stop above Rs 2,550 and go short on the stock expecting atleast Rs 2,350 on this. Q: Any infrastructure stocks? Do you have a buy on Praj today? A: Yes that's right. Praj made a significant low about Rs 40, around September. Once the move from Rs 40 to Rs 53 was a sudden burst and since then the stock has been moving sideways. The price action from that point onwards is looking a bullish consolidation. It seems to be building a higher base. So, if my understanding of the market is correct then Praj is very likely to bottom at this point. It is likely to hold Rs 45 and head to about Rs 54 in the short-to-medium term. Q: From these three rate sensitive pillars, autos, infrastructure and the banks, which of these stocks is looking weakest to you technically? A: That's a difficult call. Obviously, infrastructure is the weakest to me. Last few days ago Tata Motors gave a very significant price action. I thought the move from the September lows to Rs 338 was a directional move. However, the market is telling that it is actually a corrective price action. Tata Motors is likely to dip below Rs 202 in the medium-to-long term. However, there might be a little bit of juice left for Tata Motors to go up in the short-term. So, that is a very significant price action and that has a bearing on the entire auto sector. Bajaj Auto is still the strongest in the auto space. The weakness has started to creep in other auto stocks along with Tata Motors.