Technical analyst Gautham Shah of JMMS Tech states that the Sensex support is seen at 12100 and Nifty at 3500. They believe that currently there is only a technical pullback within downtrend.
JMMS Tech believes that market may re-test recent lows and break below. They opine that the midcaps and the smallcaps to be the worst hit. According to them,correction is likely to last for at least two months.
Market may start bottoming out by May-end, says Shah. The best is over in technology and telecom and 15-20% drop is likely, he adds.
Excerpts from CNBC-TV18's exclusive interview with Gautam Shah:
Is it just a technical pullback from oversold ground or is it more, technically speaking?
It is a perfect technical pullback in a downtrend, I think this is very typical, we saw that happen in May-June last year as well and I guess after the 2500-point fall on the Sensex, we were looking at some sort of stability around 12,500 on the Sensex and 3600 on the Nifty.
We saw these levels being tested a couple of days back and what happened yesterday and what has happened so far today looks like a perfect technical pullback to the resistance of 3700 on the Nifty and 12,800 on the Sensex. I do not think that the markets are going to sustain at current levels and there is a fair chance that we might just get back to the recent lows and possibly even break them by a wide margin.
What would be an eventual support target or downward targets on the Sensex and Nifty?
The immediate level, where we look at stability, would be 12,100 and if the markets were to reverse from the current levels, which is very likely in the next couple of days, I think we could quickly go down to a level of 12,100 on the Sensex and 3,500 on the Nifty.
These are short-term targets, we think that the worst is yet to come and therefore even after some sort of stability or distribution around these support levels, we could well move towards 11,000 and 3,200 on the Nifty possibly by May this year.
If you were to ride this pullback though, how much is it good for - 3,700, or more?
3,700-3,720 on Nifty spot and 3,700-3,710 on the Nifty futures, I thought were very important resistance levels. In fact, these were the levels, which we were watching very closely in the first half hour of trade and I believe we have corrected from around 3,700. So I guess that anybody who has created long at lower levels, I think this is a good opportunity to exit and possibly try and initiate some conservation short positions with the stoploss above 3,750.
What are the medium-term target charts suggested to you now?
We do not have medium-term targets. In fact, last November we came up with a bullish medium-term target of more than 15,000. We were actually trying to get as close to the top as possible, we have got 14,700 and once 14,000 was broken on the downside, we thought that downtrend had begun and that is the time when we actually cancelled our bullish targets and initiated a negative view on the markets.
Now because we have already corrected 2,500 points, it is very easy to be pessimistic and talk of lower levels. So what we are trying to do is just wait out this pullback in the next couple of trading sessions and possibly sometime next week when we are close to resistance levels, we will possibly come up with medium-term targets and I think that 11,000 and 3,200 on the Nifty might just be our medium-term targets for the next few months.
What do you expect to see in the midcap universe this time around? Will they underperform the Sensex or the Nifty in this phase or outperform - what are the charts suggesting?
What has really surprised me is that the markets have topped out without euphoria, the smallcap Index did not even reach the high they tested in the month of May '06 and typically during the bull market tops, you will see a lot of euphoria; midcaps, smallcaps, largecaps all doing well at the same time.
We abruptly topped out at 14,700, so I guess the midcaps and smallcaps are definitely going to be the worst hit because people who were holding them since May '06 did not get an exit route and I guess if the markets were to fall to the levels, which we are talking of on the Sensex and the Nifty, I think midcaps and smallcaps are going to be the worst hit.
What changes the equation? Do you look for a particular level on either Indices or if this market indeed shows you signs that it is not cracking too much, does that show up a strength?
It was all there on the charts, sometimes it is just unbelievable how charts actually tell you that the markets are topping out. Yes, we could not catch the top at 14,700 but once we actually broke 14,000, there were a number of triggers, which suggested that we are in a downtrend, we started making lower tops and lower bottoms after the span of nine months, we have a perfect double top pattern taking place on the daily charts and there were some of the other triggers, which is very difficult to talk about on air but we had pointed it out in our report and that is the reason we are very confident and we could go down to 12,500 initially and then much lower.
Any technical studies that you have done on the amount of time we need to spend in this bearish consolidation kind of phase before the next leg of the uptrend begins?
Yes, we are very clear that the correction on the downtrend this time around is going to be deeper and longer than May-June last year. Given that, timewise we are obviously going to correct at least for the next couple of months. I have mentioned that May is going to be a very critical month for the markets, we thought February and May ideally to be topping out months for the market but the fact that we have already topped out in February itself, means that May might just be a bottoming out month for the market.
So I think March and April is going to be bad and possibly in the second half of May, we will look out for some bottoming out signals, that is if the markets actually gets to a targets of 11,000 and 3,200.
There were some calls that technology will lead or support this market. Technically, are these charts showing you leadership?
I am absolutely a contrarion on technology; I have presented it in my reports a couple of weeks back. I think despite the fact that technology as a sector has corrected 15 per cent and it did pullback very well yesterday, I think the best is over and I guess even from current levels, we could see a 15-20 per cent drop in the sectors and the stocks, which have done so well in the last few months and that would be technology and telecom. So I guess any pullback, like yesterday, if it continues in the next few trading sessions, would be a sell on technology because we are still looking at 15-20 per cent.For more such reports, log on to www.moneycontrol.com
