“I will keep pharma and IT on radar. IT is looking more promising than pharma so on a ranking scale, IT first and then pharma next but pharma needs to confirm from a market perspective on the price charts that it is reversing from there. Nifty Smallcap is nearing support at about 8,200. If it tries to hold then we can explore possibilities out there but that will be just a trading play and not an investment play.”
“The US equity markets need to make one more lower low below the low it made recently. Nasdaq should be around 11,100 and that will complete the short-term structure. When it comes to the dollar crosses and the dollar index, the markets need to make one more higher high and once that happens, we can see a corrective rally take hold,” says Jai Bala, Chief Market Technician, Cashthechaos.com
Did you go short on the big gap up or the rally which was seen overseas as well?
To be honest I have been on 100% cash, I have not got the short for the entire move now and I am happy with that because I expect the market to rise a little bit higher but it is either you are not losing money or making money and that is the best place to be.
So as far as the market setup is concerned, from a very short-term perspective, the US equity markets need to make one more lower low below the low it made recently. Nasdaq should be around 11,100 and that will complete the short term structure. When it comes to the dollar crosses and the dollar index, the markets need to make one more higher high and once that happens, we can see a corrective rally take hold and we are likely to see some reasonable bounce and probably another two-three weeks of relief rally. But overall from a medium term perspective, we are not done yet. From a short-term perspective, extreme short term is a little bit lower and then from a short term perspective, a little bit higher.
So you expect a fall in the extreme short term and then a relief rally. But you are not expecting the bigger universal correction to be over. You have said on earlier occasions that Nifty at 14,000 odd is a possibility and it is still on the table. Do you still believe so?
That is very much on the table. I know we just have to evaluate but it is not going to go lower than that. We had a time frame roughly of about August. Time is always approximate when it comes to estimation but when it comes to price levels, once the anticipated relief rally comes through, that will tell us the nature and the character of the bounce and that will tell us if the markets are going to get deeper than the anticipated levels of 14,400 for Nifty. For the global markets, S&P has been projecting about 3,200. We have to evaluate if it is going to get worse than that, but that is the working thesis at the moment.
I would also want to know your thoughts on commodities, particularly crude because apart from that, almost every commodity is down 15%-20% from the top. Crude did not fall in the same proportion. It has repercussions and ramifications for equity markets as well?
Yes, crude is at crossroads and I have been long on crude and I am expecting it at $140 but it has come to a point and turned at a point where it can prove me wrong. $125 is a very important resistance and markets have rejected crude from there. So there is a possibility that crude could continue lower and if it breaks about $113-$111 range, that will bring in a sharp correction for crude. But if it does not, the thesis that I had of it hitting $140 will continue.
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Is it time to start nibbling into auto, capital goods – and go short or book profits in commodity manufacturers which have been beneficiaries so far?
Yes that is a very sensible idea. But we are in an overall down trending market so there will be relative outperformance. Given the overall downtrend, I would not allocate too much. Normal allocation for such a strategy would be something like 100%, you should be doing something like 30%.That will be a very strategic and tactical allocation.
What are the stocks on your radar which you would pick up if they fall 15-20% from here?
IT has come to a very important structure. IT may not have too much downside and so I am looking at largecap IT as a reasonable bet from here. Although pharma has not yet shown signs of bottom, I will be selective there and watch that around 12K on the Nifty Pharma index.
So, I will keep pharma and IT on radar. IT is looking more promising than pharma so on a ranking scale, IT first and then pharma next but pharma needs to confirm from a market perspective on the price charts that it is reversing from there. I would not pre-empt the market but IT is looking slightly promising.
And what about the midcap and the small cap index? Do you like anything there?
Yes they are generally high beta and I will try to avoid them at the moment. Generally they tend to react much worse when it comes for the decline but the Nifty Smallcap is nearing support at about 8,200. If it tries to hold then we can explore possibilities out there but that will be just a trading play and not an investment play. This anticipated relief rally after the extreme short term decline will have some trading play come out from the smallcap plays. Again I would look at IT there; something like a
is looking interesting here but I would want the price to see some reversal out here.
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