Nifty may correct till 7700; banks, IT cos weak: ATMA

Sonia: I remember you telling us that the top for this market could be somewhere around that 8,550 or so, we have come off from that level, what is the prognosis going forward?

A: We have gone back to that level twice. If I may be allowed a little bit of a jargon, the first time we went there it was 7,930 – lower low than all the lows we have seen in the last six months. Traditional trend analysis people will call it as the lowest low. I see that as an early warning that the down trend that started from 9,100 has not yet gotten over. So, the ABC pattern tells me this entire move twice to 8,550 area is only a counter trend correction of the longer term downtrend that started from 9,100 going down 7,930.

I am at this moment a bit worried and anticipating a move that will compliment the down trend that came from 9,100 down the way to 7,930. So out of sense of conservatism maybe I have been talking about 7,700 in my prior few interactions; that is a humble way to say markets are going down only till that much. I will be mentally open even at 7, 400; I am not projecting right now but that kind of deep downside is quite possible. Latha: What will take it there, which part of the Nifty?

A: In down trends, the correlation of stocks is much lower and they have their own individual trends. It is a bit of risky to cut it fine on everything but then banks are definitely looking weaker than the rest of the pack. Even the IT stocks that look like having a small blip, that will sustain this next one or two days upwards blip on Nifty. I think I am quite worried on the long-term downtrend on IT stocks.

What I am also worried about is that BPCL though not so much of a heavyweight on the Nifty, it might lose straightaway 20-25 percent. In that measure there are again some counter trend stocks like now Tata Motors or Tata Steel are oversold, Cairn is oversold, Hindalco is oversold. So, there are a number of oversold stocks and will have cyclical rotations. It is not going to go down in one straight line. However, perhaps over a month, month and a half, a down move to 7,700 looks quite feasible without ruling out 7,400.

Sonia: This 7,700 level is something that you would expect in the next one month so what would your year-end target for the Nifty be? Would you have any expectation there?

A: I will hazard a guess, once we survive this 7,400 to 7,700 pocket I am hoping this downtrend from 9,100 should get over by then and we should get back to the long-term uptrend. However, forecasting so many legs up and down is a bit adventurous but that is what I would guess right now.

Latha: The other pillars of the market have been Reliance Industries, Larsen and Toubro (L&T) to some extent and now BHEL is also getting a lot of look in. How would you draw the charts of these three stocks?

A: For a short-term or medium-term trading, say the one month timeframe we are looking at, I will definitely not but L&T. However, perhaps if I see a down close on that, might not be a bad candidate to short sell. While I am quite bullish on BHEL on the very long run but then again BHEL should also participate on the downside given a 15-18 percent kind of a correction from here.

You spoke about Reliance – that is not looking like creating any exceptional moves out of line with the market so perhaps it will trade inline with the market.

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Sonia: You said that Tata Motors looks oversold and could perhaps move higher. In fact today is the first day in many days that we are seeing a bit of a rebound in Tata Motors, it is up about 1 percent. For someone who has a slightly longer term target for the next two to three months, what would your target be?

A: For adventurous trading Tata Motors can be nibbled in to into long positions but when the overall market perspective for me is down I am not keenly looking for many long ideas. So, this looks more like a rebound might go up 8-10 percent, 7 percent and that is not the best of the trades I want to take. However, if somebody is stuck up with Tata Motors, maybe it is giving you some respite and maybe there will be time to get out of a losing position 8-10 percent higher.

Latha: Let us zoom out of the Nifty, if 7,700 is where things are going there is a goodish bit of capital depreciation or loss that people are likely to face. Is there a place to hide in the midcaps?

A: I don’t want to get adventurous into the midcap space now, no. 9,000 to 8,000 was a 1000 points took about 2.5-3 months and if I am saying that his leg down is going to be more mimicking the first leg so fairly well structured down move. I don’t want to be looking at many bullish bets. Latha: I am not saying bullish, there are some people who have to invest in shares for instance equity fund managers. So, for them is it an Ashok Leyland, are there pockets which will outperform a falling market?

A: It will try and capture that kind of an outperformance which though not the most advisable thing to do, fund managers should stick to their high conviction, longer term bets - say accumulate things on weakness. We have to still address this thing that what are the places we can rotate into. Then a trading oriented approach where one is nimble footed these oversold stocks will from time to time keep giving rallies, and we can try and hide temporarily within them -- if somebody has those skills try and capturing these 10-12 percent kind of rebounds in between is perhaps one way.

Sonia: You said 7,700 on the Nifty in the very near-term, what about the Bank Nifty? What is the target there?

A: Typically, Bank Nifty moves about 1.25 to 1.5 times. So, we can project it that way. But, in the immediate run, say if I am looking at next 5-10 days of the market, so, banks are going to be leading the way down. They go down first. IT stocks perhaps go down next. So, there is always a rotation, all the stocks will not move up and down the same extent everyday.

Latha: What is the hierarchy within banks because we are speaking about 30 percent of the listed space? Is there which are the weaker PSU Banks would be the weaker pocket you think?

A: They are definitely looking like the more weaker pockets.

Sonia: So, you would not advise anyone to venture out and buy any of these beaten down names like Punjab National Bank (PNB), Bank of Baroda (BoB), etc. or trade in them?

A: It depends who one is. Bank of Baroda has hardly produced any meaningful rebound even during this recent rally. So, it is showing weakness. Maybe if there is somebody who has a strategy to keep nibbling into stocks, say 5-10 percent of their total purchase size of the next 20 days, that is doing a volume weighted average price (VWAP) strategy or something. So, there are different people in the market and for a conversation like this, it is much easier to convey without confusing the audience by talking very specific short-term trades. So, I am not looking at going long on the banks right now. it is going to be advisable to short them and somebody is playing a one year time frame and can absorb a 20 percent loss or a 15 percent loss. A fund manager should keep on buying his high conviction ideas because in any case, for that kind of an audience, the call remains that we will see likely 9,500 before we break past 7,400. So, if somebody can take a 10 percent downside, the upside is still looking like 30-40 percent in this market over the next couple of years. So, that is a different audience.

Sonia: You want to leave a couple of trading ideas for our viewers?

A: Trading ideas in the sense, yes, definitely. Nifty looks like it should be a good short trade with a stop anywhere higher above 8,460. I am not revealing mine, you have to choose your stop loss based on your risk tolerance. But, that is the area, 8,400.

Latha: That is for this contract?

A: The current month. In line, even shorting banks is fine. Give IT stocks a couple of days more and there will be shorting opportunities in them. BPCL has been a sort of very buoyant stock. So, one has to nibble in small positions in that. But a 20 percent down move is a decent one to catch. It is extremely overbought showing all the signs of that it is all done and ready to glide down. So, at the appropriate signal that should be a short trade. I am basically right now broadly biased in line with the broad market direction to be seeking short trades.

Though for very sharp traders, Tata Motors or a Tata Steel or a Cairn or a Vedanta, they are all different stocks looking for rallying.

Latha: Give us one more chart – crude. Has it seen the worst at USD 45 if you are looking at 9x or can it dip further?

A: I do not want to entertain ideas that oil will be free one day.

Latha: Iran may come in and supply a bit.

A: Oil at USD 45 is definitely seriously overdone and for the medium-term, there are more than enough signals to believe that a move back to 80 is far more probable and maybe higher. For now, humility requires to talk only USD 80. I am not looking at a bearish oil. Life is not so easy.

Latha: That certainly ties with 7,400 you will have to say, because we have been riding high on a cheap oil sentiment for sure, even if not reality.

A: I will take a liberty here. We all suffer from intellect and we all try to correlate things. But in the real world they might actually not be so correlated.