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Last Updated : Jan 20, 2016 12:29 PM IST | Source: CNBC-TV18

Market oversold for now; Shanghai mkt may bounce 20%: ATMA

Sushil Kedia, President of Association of Technical Market Analysts suggests watching Shanghai Index closely as it is the China situation driving sentiments globally.

First time since June 2014, Nifty has fallen below 7300. Sentiment is very negative and there is no point taking any fresh bets, says Sushil Kedia, President of Association of Technical Market Analysts.

However, he feels the market may be oversold for now.

In an interview to CNBC-TV18, he suggests watching Shanghai Index closely as it is the China situation driving markets globally. He is of the view that Shanghai market could even bounce 20 percent from its current position.

Below is the verbatim transcript of Sushil Kedia’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Sonia: It is extremely chaotic and volatile the last couple of days and now we have had a fresh bout of a sell off post the fall in Asia. How do you as a technical trader or analyst approach it?

A: You hit the nail right by calling it chaotic and not just volatile. The cues from Asia are what ones need to be really closely look at. It is indeed Asia and particularly the Shanghai Composite has been driving people crazy so to say. The big risk comes on the upside. Right now the consensus is bearish so the risk is upside. If Shanghai Composite rallies by 20 percent then what happens to this market that is the question I am worried about this morning. Unless and until Shanghai Composite slips by a further one percent from where it is right now I will keenly look for a rally on Shanghai Composite for almost 20 percent.

So, if that indeed is the driver of markets in the short run right now and in terms of Nifty and at 7,300 trading range being somewhere between 6,900 to about 7,900 perhaps we are having more risk for bears right now than opportunities.

Latha: So you think 6,900 becomes a very plausible level at this point in time?

A: That is the best imagination I can have; I can’t thump the table and say that 6,900 will it be. However, for now markets are very oversold, momentum is divergent. Let us put it this way; there is no case for making a bull trade right away, we will have to see if reversal confirmation on Shanghai Composite comes. However, what I am trying saying is that there is neither a good case for opening new short positions here. You have to be very poised; you have to be very calmly watching the markets right now.

Sonia: So a level close above what level will convince you that this bearishness or this downtrend in the market has come to an end? What would that level be on the upside?

A: First let me tell you trading this rally if it erupts I think it is recommended only for the rarest of the rare professionals it is not going to be an easy one. It is going to be very choppy, volatile, jumpy sort of move if it comes. I think a good trailing kind of a call a complete stop loss on all short positions and start nibbling up long positions would be if you see this market closing at a level higher than the close of four days ago. That is where I will find some courage back to say that yes you have to start taking on some selective long positions.

Latha: You mean you should hold higher than the four day low?

A: No, if any day market closes above the close four days ago that will be one decent signal to start taking some long backs.

Latha: How are you looking at the US markets? Yesterday at that 1867 many people said was a very important level which held on the S&P 500. What is your reading of that chart itself? Is that also showing more breakdown?

A: Whether the S&P 500 or the other major European charts and even our Nifty is behaving closer to these western markets. There is no key number really so to say where and formation around which you can say that this is a natural stop loss and you take that and you start taking a long position or there is a sort of new breakdown. The only fact that the markets are deeply oversold and momentum is divergent, let us put in common sense terms for explanation. In last eight days despite all this violence in markets how many points has Nifty come down on a close to close basis. In last eight trading sessions we are only down 200 points.

However, there is so much of negative emotions, there is so much of panic so that is what I mean by momentum divergence. Sentiment is very negative yet prices have been volatile heavily around these levels and markets have not really rattled down in last eight days to that way. The same picture, to go back on our question on S&P, so there is no natural stop loss number around here for which you can thump the table and say that this is level to hold as a stop loss and take a buy call.

The markets are actually at an interesting phase. There is no case for a bull case here and what I am arguing is that the current phase of the market is also that place for one to be a bear a fresh. There can be dead cat bounces if you like to call them that way or you know interim rallies in between of say about 6-7 percent on the western markets and Nifty in line Shanghai Composite may be it goes to 20 percent higher.

Sonia: So no point taking fresh bear calls that point is taken but I wanted to just ask you about some of the individual stocks Sudarshan Sukhani was making a point earlier that one or two years down the line if some of these levels that look very attractive now you will perhaps be thankfully that you bought maybe at these levels, the likes of Asian Paints, Larsen & Toubro (L&T) some of the private sector banks as well. So, once all this dust settles what are the stocks that one can perhaps look at accumulating with a longer term perspective in mind may be one or two years?

A: CARE and ONGC to begin with for this morning and I think the infra names L&T, BHEL are very closed to those long-term low levels. However, post this rally again they come back and slide 8-10 percent, 15 percent lower from current numbers I can’t rule this out. Banks for the short run if indeed this rally materialises may be you know an 8-10 percent swing up in State Bank of India (SBI), ICICI Bank and may be 15 or 18 percent kind of a up-move in Punjab National Bank and Bank of Baroda (BOB) can’t be ruled out. These are going to be noises up-moves.

Post this rally if banks come back again another 20 percent lower from wherever they peter out at so I don’t want to cut the ice right away on very long-term bets. Indeed there is going to be a gorgeous bull market coming back again but before that there is lot of dust that needs to settle. Who knows this call of a long-term bottom within this quarter might have to be postponed to the next quarter or may be by the middle of the year.

Latha: I agree that this question is for the intraday trader 7,300 is being held. Within the first one hour if we hold on to the 7,300 mark will that be a scope for day traders to come and respect that bottom and perhaps take long position intraday? Even as I speak it is 7,299 so 7,300 has been taken 7,298 was traded and now we are back at 7,300. How sacred is the bottom of the first one hour?

A: Each trader has different style of trading. Maybe there is a trading approach by keeping it this way. I will not be able to comment much on that but what I am going to look at is I am closely watching Shanghai Composite today. Not that there is a one to one correlation but is where the emotions and sentiments world over are right now driven. There is a much more clearer chart. There is a terminal triangle pattern down there on a double bottom so to say. If indeed that gives me the first cues I will start nibbling in any option based asymmetric pay-off trades. However, the moment Nifty closes higher than close of four days ago that is my trigger I don’t want to stick my neck out into intraday noise right now.

Latha: Would you start buying saying for instance Reliance now, for a positional trade?

A: For a positional trade also with the caveat I understand Reliance owns this channel.

Latha: I am just asking you if you will go long on any stock; Reliance because the numbers came yesterday?

A: I will tell you that Reliance to my chart readings seems like is going to be a trade that is going to run against the Nifty even in this rally. It has been rallying for almost five-six months now. Unless and until we takeout the high of the prior week I would still be willing to bet for a short trade. If I get stop loss there I would say on a medium-term perspective of next three-six months Rs 1,150 is unlikely to be broken and will go back to Rs 800 on Reliance.

Sonia: We were talking about how PSU Banks can still be shorted now. What is the sense you are getting about how to approach these names like State Bank of India (SBI), Punjab National Bank (PNB) etc?

A: I don’t want to short them I want to stay on the sidelines and I am anticipating a large rally to emanate globally triggered by Shanghai Composite and same here. So, one day or two day affair is not what I am good to play. I will rather stick to looking at bets for a positional reversal. I think it is too late to start shorting now.

Latha: Any place that you can already start buying you think, say like IT and pharmaceutical names?

A: The pharma names look to be having a more stable chart right now for again an interim rally only. If I am going to look at a longer term move I will ask people to start inspecting ONGC and Cairn India where closely. My typical style is more contrarian than very short-term trend following. The trend is your friend only until it ends or bends. If my job is to start looking for finding signals where a bend may come and in that context if you still want to retain your exposure to this oil and gas sector shift money from Reliance into ONGC and Cairn India from a medium term to longer term bet.

Sonia: You were telling us that at some point you were expecting the Shanghai Composite Index to make some sort of a re-bound. However, but what would you do then, if the market does give a bounce would you at that point look to sell into the market or is there an opportunity on the long as well?

A: If the Shanghai Composite creates the sustainable rally and for next 10-15 days equity markets world over finds a respite and Nifty goes up by 400-500-600 points from here in that phase while the caveat is definitely playing rallies in such a markets is only for the very skilled or those who have had a lot of profit in the recent past with that caveat the stocks that I will be hot listing for playing the rally ones it is confirmed will be L&T, BHEL, SBI, ICICI Bank, the PSU Banks, not so much HDFC or HDFC Bank not so much of them.

I will be interested in ONGC, Cairn India. I am not keen on cement to participate in this rally. Autos look like will participate a lot in this rally if it comes so that is where my trading rally list is.

Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.
First Published on Jan 20, 2016 10:07 am