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Don't cross fingers for pullback rally: Violet Arch Cap
Even though the market started off on a positive note, Mithil Pradhan of Violet Arch Capital Advisors is not expecting to see a pullback rally. Instead, he tells CNBC-TV18 that the daily charts of the Nifty suggest a downside to 4600 levels.
“The only thing that is playing out in favour of the Nifty at this point of time is the sentiment indicators,” he says. Based on that, he thinks the best case scenario is a rally from current levels to 4920 initially or 4956-4985 maximum.
Pradhan goes on to say that this is not the time to short stocks. “Wait for a day or two and then look at buying dips, especially in banks and metals,” he advices.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: What is it looking like, are you playing for a pullback on the Nifty or do you expect more downside?
A: I am not the kind of a trader who would play for a pullback in a particular bear market, because things are not really looking good. Two days back we had the CRB Index completing its bear market rally, we have a channel on the Nifty daily charts which suggest a down side to at least 4600 levels and we have a weekly overbought momentum on Nifty.
Right now, the only thing that is playing out in favour of Nifty is our sentiment indicators - the volume put call ratio and the arms index, which are moving into an extreme right now and signal a reversal. So the best case scenario from current levels is that we can rally from 4920 initially to 4956-4985 maximum, which is where it should fizzle out. So I am not playing for a pullback right now.
Q: How carefully are you tracking the Bank Nifty and are you seeing signs of a further breakdown over there?
A: I wouldn’t call this breakdown but incidentally, we are already short on Bank Nifty at much higher levels. What I feel is that there are three bottoms which are extending on the downside. I think 8200- 8250 is the level where people would like to cover shorts and a healthy bounce back can occur from that level.
But if you look at individual stocks like Bank of Baroda , Federal Bank , Axis Bank and SBI , the charts of these stocks are not looking fine, so playing for a pullback is looking difficult in this case.
Q: There has been relentless pressure on the metals. Do you see the possibility of a pullback there or would you still be bearish with trades on names like Sail and Sesa Goa?
A: Lot of these momentum stocks like the metals index, Tata Steel , Sesa Goa , Hindalco and I would say the entire midcap index and the smallcap index form running corrections on daily charts, and running corrections are one of the most ferocious patterns that I have experienced.
The BSE metal index does have a support at 9961-9738 and if these levels hold on then you can possibly look at a rally of at least 10-12% as a rebound. But I really feel the chances are very less. Look at these stock counters, Tata Steel has an amazing support at Rs 360 but it is still about 5-6% away from that particular level. So I am not very sure whether this level should hold on, but 9961-9738 is what traders should now look at.
Q: How are you calling the next series because on that as well there is a fair amount of trepidation on the fact that December is probably seeing even lower levels for the index?
A: I have done a particular study and I have found out that November and December are usually the best months of the entire calendar year. But then the market is becoming so funny nowadays. October, which was supposed to be the worst month, did not produce any negative returns, but we are already down in double digits in November. So I will not use seasonality in predicting this particular market at this point of time.
The way I am playing this is simple, I am looking at the dollar-rupee that you are tracking right now. I see a double top created at the 52 levels; there is a nominal breach of this particular level between yesterday and today, but we are not yet confirmed whether this breakout is a true breakout. So I would rather wait for a day or two, look whether dollar-rupee moves below 52 again.
At the same time, we are reaching 4700 levels on Nifty, we are reaching an important level on metals index and we are about 300 points away on the Bank Nifty. So over and over, I see a lot of supports which are of prime significance for bullish traders. So at this point of time, shorting is a complete no-no. It is best to wait for a day or two and then look at buying dips, especially in the sectors that I discussed right now.