Bias is bearish, short market on rallies: Sudarshan Sukhani

Yesterday, the foreign rating agency Standard & Poor's revised Indian outlook to negative, citing investment & economic growth slowed, and wide current account deficit. The Sensex and the Nifty closed with moderate losses. Today, April futures and options (F&O) contracts will expire.

In an interview to CNBC-TV18, Sudarshan Sukhani, s2analytics.com says his bias is bearish. "I would take small positions and short the market on rallies," he adds. Also read: India growth story still on, says Motilal Oswal Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: Last day of the series, how would you approach trade on the index? A: Usually I try to avoid trading on such days but today, I think the bias is almost clearly bearish. So I would look to take small positions on rallies and short the market broadly
Q: You have got a sell out on Syndicate Bank today? A: Yes. I have been referring to these distribution patterns and the reversals that we are seeing in many midcap stocks. Syndicate Bank is also in the same grade. It has made a bearish head and shoulder pattern, broken down below Rs 100. So there seems to be no reason to expect that this will be different. The chances are that it will come down to Rs 85 eventually, which is the target. So Syndicate Bank’s breakdown yesterday tells us that there is much more downside. Futures and Options can do a number of unusual things but within that caveat, I think there is much more benefits in going short in most of these stocks than in going long. Syndicate Bank is a sell and many of the midcap stocks have made those distribution patterns and broken down. Q: You would say the same of an Axis Bank, you would short that too? A: I would say the same of an Axis Bank because at Rs 1100 it’s made almost a picture perfect descending triangle and come down from that. That gives a target of Rs 950 for it. These distribution patterns have some meaning. It’s very unlikely that 100 or 500 midcap stocks show a distribution pattern, breakdown and one fine morning revert back and reverse, and don’t give a follow through. Now there is a very clear message in the market, banks are breaking down, cracking down and that’s why Axis comes in the list of stocks to short. Q: We were just talking about the strength in autos this series and you like Tata Motors? A: Yes I continue to like Tata Motors. It has been a remarkable stock. Stocks that go up continue going up and today, could actually be a very interesting day, it could go up because of the Future and Options dynamics as well. It has been in a small trading range for 3 days. Traders must look to buy it in the morning if they see the slightest signs of strength in the stock. Q: What about something like Dish TV? A: Dish TV qualifies as a buy on dips candidate. It went all the way down to Rs 50 then there was a very decent rally to Rs 65 that is 30%. Now we are seeing correction. I am assuming that at Rs 60, we are seeing a correction that is now finding support. Yesterday, it closed better, made some decent bullish patterns. It is not easy to say what will happen if the markets actually crack down. But if they don’t and remain choppy, there are opportunities to buy and Dish TV qualifies as almost perfect low risk buy on dips candidate. Yesterday’s price action suggests we could see a breakout on the upside today. Q: From the financial space you are bearish on brokerage like India Infoline? A: It has already cracked, so I am just assuming that there will be significant follow through on the downside. At Rs 53 it is lower from the highs of Rs 67 and there is much more downside left at Rs 56. Probably it won’t stop till it reaches Rs 45, where there is lot of support for this stock. So yesterday’s big decline tells us there is lot more downside, more follow through is expected today and in the next few days. _PAGEBREAK_ Q: You are positive on IVRCL, it made a 5% move up yesterday? A: It did and the nice thing is that it went up to Rs 75. The theme is, please do not rush to buy, you will get it lower. Never buy when there is excitement and news. That proved itself again. It has come down, it made a low of Rs 60 and at Rs 64 it has become a buy on dips opportunity. Anyone buying at Rs 74 can now buy Rs 10 lower. The theme still remains; IVRCL is in an uptrend. It bounced back right from Rs 60 support. So here is another stock like Dish TV buy on dips. It is probably a little better than Dish TV. Q: What is the trading call after what you have seen in pre-opening? A: The view still is that today we should be looking to venture out and take some bearish calls on the downside for the Nifty. It’s unusual but today is probably an appropriate day to build positions for next week. Q: Beyond today, the big call is for the May series. For the first part of the May series you think the bias is down and the Nifty should go down to 5000 levels? A: I think so, that’s what I am working on and that is how I am positioning myself. The market is slowly steadily sliding down inch by inch. Many of midcap stocks have completed their bearish reversal patterns, distributions if you call it. So, all those 100 charts are not going to go wrong in a day. I would expect 5000 to be reached sooner or later, probably before 15th May. Q: What about Petronet LNG which corrected 5% post numbers yesterday? A: Yes Petronet LNG is a disappointment. It is a wonderful stock and people have made money on the long side. Rs 150 was a strong support but that cracked without any resistance all and now the next targets are Rs 110-115. There is nothing to buy here. You don’t actually go and sell out on strong stocks but the trade is to go short if the trader wants to. Otherwise you just step aside and let it complete its correction. Q: S Kumars was also under some pressure yesterday? A: So many midcap stocks have broken their levels in the last 2-3 days. S Kumars had this final support at Rs 31 and it cracked below it. Now it’s looking at a target of Rs 25-26. This is not good news but S Kumars is also an appropriate shorting candidate. It is worthwhile to go and sell it. Q: Do you still see further downside on BHEL? A: Yes it’s already making new lows. The only thing is that BHEL is something that I don’t really like to go short in for the simple reason that I do not know whether the stock can be pulled up in a day or two days. There could be some news that can change its character. So I prefer to stay away but on the charts BHEL is a short, anything that makes new lows needs to be sold into. Larsen and Toubro to me is a much preferred selling option where a target below Rs 1000 appears reasonable. _PAGEBREAK_ Q: What about Wipro after yesterday’s fall? A: It has made a distribution pattern. It had a one day freak rally that is day before yesterday when it went up on the back of TCS results. That is how the market behaves, completely irrational. It has come back; it has broken its support. Wipro is not in the same league as Infosys on the downside but it’s fairly bearish in terms of charts. Q: TVS Motor one of the few stocks which went up yesterday. A: TVS actually found support at the lower end of its trading range. It went all the way to Rs 36-37 and bounced back. There is some reason to believe that this could be a short-term low. So for TVS, I would be a little mildly bullish. If there is an opportunity I would be a buyer, there is no short selling here for sure. Q: You were talking about the breakdown in banks; do you see a similar structure on faces like PFC? A: Yes except that there is little difference, PFC has broken down; it made that same bearish descending triangle pattern, cracked yesterday. But in fact the difference is that REC is not doing the same thing. Usually both these two stocks move almost in the same direction with similar mirror image chart patterns. But this time PFC is giving clear signs of a breakdown, giving a downside target of Rs 140 but surprisingly REC is not doing that. So a trade could actually build up sell PFC and buy REC. Disclosure: I have no personal holding in any of the stocks discussed.