Ingenious: This is still a growing sales market; 15,500 is a positional target for Nifty: Rahul Sharma

“This continues to be a rising sell market, especially given the 200-day exponential moving average that we had, which is hovering around the 16,830 mark. We are heading even lower in the medium term,” he says. Raul SharmaDirector and Head – Research, JM Financial Services.

We have seen a very sharp correction in the Dow, as well as the Nasdaq, with tech stocks leading the decline in the US. Both indices are now at multi-month lows. Where do you see it heading? Has the selling pressure eased now or are there more drawbacks?
The weakness is led by what is happening in the US markets and overnight the Dow Jones has broken its February lows; 32.284 was the previous low and it managed to close below that. While the Nasdaq, which has led the general correction, the S&P 500 has fallen below its February lows. S&P 500 VIX is a clear indicator. It is also heading towards the 35 mark, indicating that the period of high volatility may be back for the US markets.

We continue to trade at 22% of the VIX despite the general correction that we have seen and the volatility, especially the gap up and gap down, that we have seen across the series in recent weeks has been very difficult for traders. It hasn’t really enabled market share. So from a global perspective, it definitely seems to be a gloomy picture. Time and time again, we have seen those bouts of volatility with short-covering rallies as well. But as long as the FIIs’ long-short ratio remains below the 25% range, we think the upside for markets will be limited.

Historically, we have seen the long-short ratio in index futures bottom out around 17-18%. Only once has it stayed below what it was during the pandemic downturn we had in March 2020. But barring that, most of the time we’ve seen this ratio bottom out in the 17-18% range. It is currently trading at 23% and we believe there is more room to the downside when it comes to this important index.

Overall, this is still a rising sell market, especially given the 200 day exponential moving average that we had, which is around the 16,830 mark. As long as we stay below that, this is a classic bull market where we are heading further lower in the medium term.

You said we’re likely to see more snags. What kind of goal have you set for Nifty and Nifty Bank?
The best way to split the index right now is based on two time frames: One, if you’re a positional trader, you’re not worried about the 200 plus and minus 200 points we’re seeing on the Nifty. So as a positional trader, the outlook is anytime you see a spike around 16,600-16,700, look for short selling opportunities. In case you are stuck long look to get out of your long positions around that level and in case you are a day trader or very short term trader given this weekly expiry setup we think there is a bounce that is playing as we speak and we may well be heading towards the 16,500 mark.

So positionally we think 16,000 should possibly be tested on the next weekly expiry and below 16,000 we think there is a good chance of making a new lower low. The previous low was around 15,670 points. So 15,500 is something we have in mind as a positional target for the Nifty. Any rally that we see from these levels could be a good opportunity to sell. At the very least, one can buy put options and take advantage of this potential downside move.

India VIX trading at 22% is also not that comforting for the general scheme of things. At the same time, not being as high as the S&P 500 VIX is likely to be also gives us room to the upside. So, should there be a sharp drop from here, India VIX could be heading towards its previous high of around 28% to 30%.

The Nifty downside that 15500 suggested is wide open as far as markets are concerned, but in terms of specific pockets, whether it’s the metal space that’s been hit quite a bit already or the IT space that’s seen quite a bit of correction, it doesn’t warrant a new look and a new purchase at these levels?
Bounces in such periods can be tricky because bounces can be sharp and fast and we are advising clients not to sell something that is already weak. In general, what happens is that we prefer to short weakness and buy strength, but the market is usually grinding lower, we are looking for ideas that were relatively strong but are now weakening.

Right now, when it comes to short selling ideas, we stick to indices strategies, short index-based positions, whereas when it comes to something like metals, most metal counters they have RSI as low as 20. So any bounce back into base metal stocks could be a smart 5-6% move. Purely from a rebound perspective, should there be some green in base metals, metal counters could be seen as going on the long side.

Given the weakness of the USD against the INR, which has crossed the 77 mark, we believe that it is headed for a change in trajectory. The previous range that was in the 74-76 range is now turning up and we believe it is heading towards 78 and higher.

So on the upside, the rupee is weakening and that should bode well for large-cap IT. In the large-cap IT space, Infosys is something we like, particularly given the technical setup and nature of the stock and its correlation with the weakening rupee has been quite strong historically.

So from a recovery perspective, IT could be a surprise. This sector was the first to weaken and was under bearish control. It broke its 200-day moving average ahead of the broader market and we believe that at least until the 200-day moving average, which is around the 1650-1675 mark, is broken, a bounce can be expected on Infosys. It can be bought with Rs 1,500 as a stop loss. So we are very specifically long.

As of now TI can do well and as far as a very short term view of the market I think this bounce should take us a bit higher on both Nifty and Bank Nifty.

(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)

Add Comment