Sell on rallies, mkts will decline further: Jai Bala

The rally seen in Nifty today is not much reason to cheer as the market is likely to fall further, cautions Jai Bala of cashthechaos.com. He advises to sell on rallies.

"The decline from 6200 to 5500 is a five step decline. So that tells us that this is just a part of a larger decline and this is not the complete decline. Let the counter trend rally play out, wait for a exhaust and then one can step up to sell the rallies," he said in an interview on CNBC-TV18. Meanwhile, he expects BPCL to climb to atleast Rs 390 in the short to medium term. He sees the rupee strengthening at 58/USD in the near-term, but adds there is still a possibility of the Indian currency hitting 65 level ahead. "Once we see the level of 50, weakness for the rupee will start once again."
Also Read: Nifty up 1.5%; Infosys, TCS down after rupee breaches 60/$ Below is the verbatim transcript of Jai Bala’s interview on CNBC-TV18 Q: How are you going to read or approach today’s gap up. Do you sense this is a pull back or is 5500 going to hold out in the medium term? A: The decline from 6200 and odds right up to 5500 and change is a five step decline. So that tells us that this is just a part of a larger decline and this is not the complete decline. You are going to get a gap up today and that’s very likely to stay below 5869, which I had projected last time. So I would look to sell into the rallies, but I won’t go step in front of this, let the counter trend rally play out, wait for a exhaust and then one can step up to sell the rallies. If you look at the important developments over the last several weeks or in fact in particular June price action globally and in India, people have been saying that the markets have been misinterpreting Bernanke, but I had said in October-November that the bond yields of the US 30 years treasuries are rising and they are likely to be hit at the current levels where they are trading at 3.50-3.75 range and we are very much here, so basically it is not that market is reacting to Bernanke, it is in fact Bernanke who is reacting to the markets. The amount of bonds that he has been buying on his books because of the rise in bond yields, he is actually running mark to market losses. So from this point onwards, it is no longer in Fed speak. The rewards of doing quantitative easing (QE) actually out weighs the risks he is taking. So the mark to market, losses on the book of the Fed is actually forcing him to take action. So it is the other way than how people are talking about at the markets. Q: One of your trading strategies is BPCL that you are buying today. A: If you look at the weekly charts of BPCL, it is trying to hammer a base at around Rs 330. If you look at the medium-term price action, it is looking like it is a corrective decline so far. So, there are bullish potential if the stock were to close and correct levels today, which is a Friday close, so that will form a hammer on the weekly charts and there are bullish potential here. So if you can place a stop below Rs 330, we can expect the stock to climb to at least Rs 390 in the short to medium term. Q: Coinciding with the pull back in the market or the other way round, the rupee could also pullback. What kind of levels would you watch there in the pullback for the currency? A: Let me take a slight tangent here. That will be a pullback for the rupee. I think it could strengthen to 58, but the important point here is the government is always the last one to recognise a move. If you look at the statements coming out of the department of economic affairs, they have been saying that the weakness in the rupee is a temporary affair. So they have still not recognised the move. If you look at the point where the Government of Britain sold gold, it is right at the bottom. If you look at the point where the Venezuelan government nationalised the gold industry, it is right at the top of USD 1,900 per ounce odds. So until the Indian government recognises that the move is secular, it is going to continue to weaken a lot… If you recall from our August 2011 conversation, I had projected a level of Rs 65 for the rupee, so I would still not renege from that projection. I don’t think there is any necessity to renege on the call. I think once we level of 58, I think weakness for the rupee will start once again.