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What is the setup looking like? Let us talk clearly about Nifty, Bank Nifty first and then we will talk about areas of the market which are interesting to you. How does the Nifty, Bank Nifty setup look right now?
Rohit Srivastava: While the Nifty may have made a new closing high, if I go to a slightly broader index like a Nifty 500 and take the highs of January-February, then we actually have not gone past that. At this point of time, possibly this will end up being a false breakout. We are not taking it as a serious break to new highs indicating that you started a fresh rally and so on.
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I think this week remains critical because it is the week prior to expiration and sometimes selling pressure does build up during this week, so we will be watching till Friday whether we can really stay above 22,120 odd because if we slip back below that, that will further confirm that yes, this ended up being a false breakout. Now, the other thing which sort of makes us feel that is possibly the case is the continued drop in volumes.
Remember that the rally in December into January was on the back of a lot of volume because of wide participation and probably the mid and smallcap segment PSUs and so on, but now the recent attempt to go higher is occurring on a very low volume showing lethargy in the market and little buying at higher levels and so that is also another sign that we may be in very late stages of this move and therefore remain cautious on the indices and the market in general.
So, what would be the downside? If we go back below 22,120, then I am looking at retesting the 21,500 level that is the critical support and if that breaks, maybe the weekly average is at 2,500, so that is sort of the risk reward in Nifty in my mind. Bank Nifty, of course, has not made it back to the highs. It probably retraced maybe 70% of the fall that it saw between December and Feb which is fair. It now looks more like a bounce to what we might call a right shoulder.
We still need to see the momentum turned down over from the last five-six days of bounce, but the weekly momentum indicators remain bearish and so we will again look at retesting the lows that we made recently close to 44,600 and if that breaks, then possibly go to 42,500 or so that is sort of the setup I am seeing in both the indices.What about areas of the market for shorting and for long activity – areas which look strong and that look weak?
Rohit Srivastava: Some of the areas which I thought earlier were strong like pharma. I have been saying this since January that the market looks toppish and probably only look at pharma but that also is losing momentum. So, I will look more at the availability of shorting opportunities rather than long. We can always start with the index, but if I have to move to the next one, there are always two approaches, one is look at the weakest segments of the market where underperformance has occurred or look at the strongest part which has gone up the most and can react. Now, what has gone up the most has been PSU stocks. If I look at the PSU RSI indicator, it has been at 93 for the last two weeks. Even last week I thought that was high and it would fall. It did fall intra-week, but then covered everything by the end of the week. In that sense, we did not get a correction on the weekly charts and therefore the RSI remains elevated. At 90 something, it is the highest since 2002. So, that is a very big indication that we have run up and are looking for that downward momentum to show up on the screen and then that is where you will probably take the trades.
Is there anything specific that you see in the PSU baskets because that continues to see an up move as well? Large banks like SBI have seen a very big up move, other banks are also there in the PSU pack as well. So, overall PSU banks as well as other PSUs – be it HAL, BEL in terms of those names as well. Anything interesting on that front?
Rohit Srivastava: When you mention defence stocks, those are the most sought after in this particular rally and also being backed by growth. In those kinds of names, it is usually harder to get the trades on the short side. The easier ones are probably those in the oil segment or power segment where you get more volatility and they may be easier to trade because you do need some level of volatility when you are trading.
So, the lower volatility stocks one would typically stay off from. Now, within banking, PSU banks have been the hottest but the weakest. Earlier I mentioned there are two segments you look for: weakest and strongest. The two weakest sectors in the market right now are FMCG and private banks based on the data from 1st of February to now. So that comes to the forefront in terms of looking at weakness developing all over again. We have seen some short-term bounce back in individual stocks, not really recommending anything but we have seen HDFC Bank do that. We have seen ICICI Bank go back towards the highs.
So, we look for where the breakdowns start really showing up within private banks in the next couple of days and that is where the opportunities may be.
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