Don't see mkt moving higher than 5450-5500 in May: Jai Bala

According to Jai Bala of cashthechaos.com, the best the market can do in the May series is 5450-5500 on the Nifty. In an interview to CNBC-TV18, Bala says the short term trend for the market is still confusing. “The market can either break down below 5135 or it is going to take a route to 5450-5500 and then come down to below 5000,” he said.

In the case the market moves close to 5500, Bala advices investors to book profits and exit all long positions. “Otherwise, you want to place a tight stop loss around 5135 and look for the market to head much lower, somewhere about 4960-4800 for the series,” he added. According to him, the best trade right now is a straddle on the market. If the market moves downwards, his strategy is to lift the leg that is positioned long and double short positions. Below is an edited transcript of his interview with Sonia Shenoy and Mitali Mukherjee. Also watch the accompanying video. Q: We have some bunched up cues from yesterday and the day before to react to, so how would you approach it for the day? A: The approach to Nifty has to be a two way trade. The confusion in the market is just growing for the short term, but the picture is quite clear for the medium term. In the short term, the market either breaks down below 5135 or it is going to take a route to 5450-5500 and then come down to below 5000. At this point in time, you can be positioned long on the market or you can straddle the market with a 5100 Put and 5400 Call. So it has to be a trade on either way. If 5135 goes you got to lift the leg that’s positioned long on the market and you have to double your short position on the market. Q: What's your sense of which way this series is pushing for the index? For a positional trader, how do you approach it because the last series was disappointing but the market didn’t break its range? A: The best this market is going to do for the May series is it’s going to see an upside of about 5450-5500. So once that is done, the structure for the market is going to be negative for the medium term and the medium term trend will start taking control. So you want to look at exiting long positions around 5400-5500 levels, if the market comes there. Otherwise, you want to place a tight stop loss around 5135 and look for the market to head much lower, somewhere about 4960-4800 for the series. Q: How do you approach the Bank Nifty because there has been a divergence of performance, especially between what's happened with some of the private sector names versus the PSU lot? A: I think the Bank Nifty should first stop clocking lower lows. For the Bank Nifty to become strong and start trending up, it needs to clear 10600 area and that looks like a difficult task at the moment. There can be some strength up to 10300-10400 on the Bank Nifty. You have to be very specific related to banking stocks. Kotak is the only one that’s looking very strong at this point in time. As long as it stays above Rs 540, it’s trending up. Even Yes Bank, which was looking strong, is now starting to weaken a bit. If you look at ICICI or Axis Bank, they have all broken down, so the space is actually fractured and you got to be very specific here. Q: A word on the charts of the IT guys you were talking about, TCS and HCL Tech in specific? A: TCS is looking very bullish and it has potential to clock new highs here. I think it’s going to scale above Rs 1300-1350, but the risk reward may not be that much here because it has jumped up quite a lot. On a small pull back of about 3-5%, you might want to create fresh positions and look for the stock to scale a new 52 week high. Q: You have got a strategy on SAIL this morning? A: Metal stocks are actually looking quite negative, the exception being Tata Steel. If you look at the rest of the metal stocks, they are looking like they are going to go down much lower. For SAIL, I am going to talk about a very technical pattern called a fourth wave ABC pattern. The high of Rs 103 is an important high here because the stock has started to clock lower highs from those levels. It has actually broken down by going below Rs 95 and it has potential to at least scale above Rs 88 if not Rs 83. So you might want to place a stop loss above Rs 102 and go short on the stock here. Q: How do you approach some of these heavy weights like ONGC and Reliance? Do you have any expectations or is that more or less a range bound phenomenon? A: I had said several weeks ago that Reliance had not started a new uptrend. It’s actually ranging between Rs 765 and Rs 725. The medium term picture is not actually that good for Reliance, so I expect the stock to break below Rs 725. The picture is similar for ONGC too. Once Rs 725 goes for Reliance, the sector as such will get a drag and the oil and gas space including Cairn, ONGC and Reliance will start to pull the market down.