Jai Bala, Technical Analyst, Cashthechaos.com in an interview with ET Now talks about his outlook on Indian markets and the investment strategies in the current market.
Your recent strategy report is clearly highlights the risk that for India a bear market has started...
That is true. If you look at the Nifty from the November highs, the markets have started to clock lower lows and lower tops and this is a classic sign of a bear market. I do not know if you have my charts in front of you, if you look at the decline, it has happened in a fashion till January and then the current decline which started approximately closer to 5900. This is looking like the most powerful leg of the down wave and there are additionally 2 more legs pending. One of them will be up and one of them will be down and the down move will be as powerful as it was from the November highs to the November lows.
How bad could it get for some of these stocks which have broken below their 200 DMA and some cream names at that, the likes of an L&T, even stocks like a Corporation Bank where you did predict a breakout earlier on?
Corporation Bank went up to its target of closer to 780 or 800 which I have mentioned but the stocks have started to reverse from there. The problem is the main stock of the Indian market Reliance, it had been going in a consolidation phase, sideways consolidation, right from the time UPA came into power.
It has been on a broad rectangle range of 1150 to 925. Now that stock is trending below that rectangular consolidation and there is absolutely no support right up to 700 odds for this stock. So you can imagine this is the main stock, much watched of the stock of the Indian market is behaving in such a fashion. You can imagine the downside. It has tremendous weight on the index and it did not look at even the other biggies on the indices.
When Reliance is going to behave this way, the down move is just in its initial stages there could be much more downsides here and if you wanted me to quantify the level, I am looking at a minimum of about 4700 on the Nifty.
So what to your mind could be the turning point for India or which are the 2 or 3 large stocks which could act as lead indicators for Indian markets?
Reliance is the key and if it does close below 885 which it did a couple of sessions ago, it is a huge vacuum for Reliance and that is going to be ragging the market and the declines for other biggies are just starting. If you looked at ITC, it has formed a double top and it has potential to go as low as 135. If you look at ACC, it has formed a head and shoulder stop.
It has got potential to go as low as 800 and Bharti has not even started to decline but that could start to decline again. That has also got a huge weight on the index. You can see ONGC having no affect despite having bonus and splits that is going down and it has got more potential to go down. So you name any stock, it has got lot of potential to go down. Probably one or two pockets in the pharma space or maybe one or two stocks in IT space. Other than that, all have good potential to go down.
What about the breakdown in the entire infrastructure pack? How bad could it get for stocks like GMR and Lanco from these levels considering they have shaved off significant amounts already?
You do not have to get to specific names. We are actually spoiled for choices, if you wanted to play short on this market. Every rise even the smaller rises are being sold into. That gives you the indication, the strength of the market and the underlying market trend. Now this is not a market where you can pick this sector or that sector. There is not one sector which has not clocked lower lows and lower highs.
That is a classic signal of a bear market and people are talking about the budget coming to play and that trying to reverse the trend and all, that is not going to happen. If you look at the market structure as it is, let’s say the world market for instance, people say it has got to do with scams or inflation in India, then what about Indonesia which was an outperforming market of 2010. Take Philippines which was outperforming market of 2010. Take the CIVETS market, when I say CIVETS, it is Columbia, Indonesia, Vietnam, Turkey, South Africa.
All these markets except Vietnam, they are all getting slammed. The world market structure is actually weakening. Probably the western markets are holding up. So there is a huge shift in the market structure. People are just focussing on the western markets. They are not looking at the other markets which are deteriorating.
But just like things never go up in a straight line, they never come down in a straight line. Indian markets are down about 14% already for the year. It has been a straight line fall for Indian market. Are we looking at a potential bounce back of about 150 or even 200 points on the Nifty?
I can say where the counter trend bounce can stop. It is not going to exceed somewhere say 5620 to 5690. That is the maximum counter trend potential. Markets are somewhere in the region of 5200 at the moment and if my wave count of the market is correct, this powerful leg of the market is going to go somewhere about 5080 to 5150. This leg of the decline is going to get arrested there. From there we will have a counter trend bounce and from there, another leg of decline is going to happen and then after that, we will have a larger degree counter trend bounce. So the downside potential for the market is at least 4700 from a 3 to 6 months basis.
What are you buying right now?
I am not buying anything. If I am buying something, I will be buying puts. That is the only thing it is worthwhile buying at this point in time and markets can bounce and it is very difficult to say how far it will bounce and if you try to play the counter trend bounce, it can stop anywhere else.
It is very difficult to place your fingers and say it is going to stop here and it is not going to stop here. That is the problem of trading against the trend. So I would not advise buying anything other than puts.
Your recent strategy report is clearly highlights the risk that for India a bear market has started...
That is true. If you look at the Nifty from the November highs, the markets have started to clock lower lows and lower tops and this is a classic sign of a bear market. I do not know if you have my charts in front of you, if you look at the decline, it has happened in a fashion till January and then the current decline which started approximately closer to 5900. This is looking like the most powerful leg of the down wave and there are additionally 2 more legs pending. One of them will be up and one of them will be down and the down move will be as powerful as it was from the November highs to the November lows.
How bad could it get for some of these stocks which have broken below their 200 DMA and some cream names at that, the likes of an L&T, even stocks like a Corporation Bank where you did predict a breakout earlier on?
Corporation Bank went up to its target of closer to 780 or 800 which I have mentioned but the stocks have started to reverse from there. The problem is the main stock of the Indian market Reliance, it had been going in a consolidation phase, sideways consolidation, right from the time UPA came into power.
It has been on a broad rectangle range of 1150 to 925. Now that stock is trending below that rectangular consolidation and there is absolutely no support right up to 700 odds for this stock. So you can imagine this is the main stock, much watched of the stock of the Indian market is behaving in such a fashion. You can imagine the downside. It has tremendous weight on the index and it did not look at even the other biggies on the indices.
When Reliance is going to behave this way, the down move is just in its initial stages there could be much more downsides here and if you wanted me to quantify the level, I am looking at a minimum of about 4700 on the Nifty.
So what to your mind could be the turning point for India or which are the 2 or 3 large stocks which could act as lead indicators for Indian markets?
Reliance is the key and if it does close below 885 which it did a couple of sessions ago, it is a huge vacuum for Reliance and that is going to be ragging the market and the declines for other biggies are just starting. If you looked at ITC, it has formed a double top and it has potential to go as low as 135. If you look at ACC, it has formed a head and shoulder stop.
It has got potential to go as low as 800 and Bharti has not even started to decline but that could start to decline again. That has also got a huge weight on the index. You can see ONGC having no affect despite having bonus and splits that is going down and it has got more potential to go down. So you name any stock, it has got lot of potential to go down. Probably one or two pockets in the pharma space or maybe one or two stocks in IT space. Other than that, all have good potential to go down.
What about the breakdown in the entire infrastructure pack? How bad could it get for stocks like GMR and Lanco from these levels considering they have shaved off significant amounts already?
You do not have to get to specific names. We are actually spoiled for choices, if you wanted to play short on this market. Every rise even the smaller rises are being sold into. That gives you the indication, the strength of the market and the underlying market trend. Now this is not a market where you can pick this sector or that sector. There is not one sector which has not clocked lower lows and lower highs.
That is a classic signal of a bear market and people are talking about the budget coming to play and that trying to reverse the trend and all, that is not going to happen. If you look at the market structure as it is, let’s say the world market for instance, people say it has got to do with scams or inflation in India, then what about Indonesia which was an outperforming market of 2010. Take Philippines which was outperforming market of 2010. Take the CIVETS market, when I say CIVETS, it is Columbia, Indonesia, Vietnam, Turkey, South Africa.
All these markets except Vietnam, they are all getting slammed. The world market structure is actually weakening. Probably the western markets are holding up. So there is a huge shift in the market structure. People are just focussing on the western markets. They are not looking at the other markets which are deteriorating.
But just like things never go up in a straight line, they never come down in a straight line. Indian markets are down about 14% already for the year. It has been a straight line fall for Indian market. Are we looking at a potential bounce back of about 150 or even 200 points on the Nifty?
I can say where the counter trend bounce can stop. It is not going to exceed somewhere say 5620 to 5690. That is the maximum counter trend potential. Markets are somewhere in the region of 5200 at the moment and if my wave count of the market is correct, this powerful leg of the market is going to go somewhere about 5080 to 5150. This leg of the decline is going to get arrested there. From there we will have a counter trend bounce and from there, another leg of decline is going to happen and then after that, we will have a larger degree counter trend bounce. So the downside potential for the market is at least 4700 from a 3 to 6 months basis.
What are you buying right now?
I am not buying anything. If I am buying something, I will be buying puts. That is the only thing it is worthwhile buying at this point in time and markets can bounce and it is very difficult to say how far it will bounce and if you try to play the counter trend bounce, it can stop anywhere else.
It is very difficult to place your fingers and say it is going to stop here and it is not going to stop here. That is the problem of trading against the trend. So I would not advise buying anything other than puts.
(Catch all the Business News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.)
Subscribe to The Economic Times Prime and read the ET ePaper online.
(Catch all the Business News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.)
Subscribe to The Economic Times Prime and read the ET ePaper online.
Get Unlimited Access to The Economic Times
