Technical Analyst at JM Morgan Stanley, Gautam Shah expects a short-term target of 9,700 for the Sensex this week. He also sees a medium-term target for Sensex at 8,500.
Shah anticipates Index heavyweights to correct by 10-15 per cent. He also feels that technology stocks are likely to lead the decline in this market.
Shah expects a time-wise and price-wise correction in the market in the medium term. He also expects a long-term bull trend to resume from September-October '06.
Excerpts from CNBC - TV18's exclusive interview with Gautam Shah:
How have you read this past week and what is your short-term target on the market now?
When we talked of a rebound from 9000, we were very clear that the markets could ideally test a level of 10500 and the best-case scenario level was 11000. We saw the markets get close to 11000 last week and this is clearly a phase of distribution, which could have got completed. Therefore this week onwards we might just begin a fresh downtrend and should take the Sensex and Nifty to a short term target of 9700 and 2840.
What are the chances that it might form a higher bottom this time around; maybe stop at 9700-9800 and then does not go on to test its earlier low?
t does not look likely because some of the technical studies, which we have been following for the last couple of months, have been very reliable and the same technical studies are suggesting that the markets might break its previous low of 8,800. We had kept our medium-term target indecisive for the last 3-4 weeks simply waiting for that trigger to come in. It was generated last week and that is the reason we have updated our medium term target to 8,500 on Sensex and 2,560 on the Nifty.
Which are the heavy weights or the index heavies, which might lead to this decline? Do you think it is the Reliance, ITC, Infosys , Lever kind of combine, which would lead it down?
Absolutely. Infact a lot of index heavy weights have come together to generate very negative triggers for this market. The fact that 10 - 12 index stocks are looking weak at the same time gives me more confidence that the Sensex has to go down. I think most of these heavy weights could crack as much as 10- 15% from current level, which is big by any standards.
What is your medium term target for this market?
Eight thousand five hundred is my conservative medium term target for the Sensex and 2560 on the Nifty. After the fall last Friday we might just see a rebound today or tomorrow, a minor rebound of 3150 on Nifty is what I will be watching in case there is a pull back. I think close to those levels one can initiate short positions. We are possibly looking at 9700 and 2840 in the next couple of weeks itself.
What levels would it have to take out to convince you that it is showing strength now?
For the last couple of months we have always said that 9000 to 11000 is a basic range for this market, we tested 9000 and a little bit below that and then we tested 11000 again last week. Unless we actually close above 11000 for a couple of days, which I do not think will happen, this market will not begin a fresh up-trend
What are the corresponding levels for the Nifty? Do you see it going back to 2600 or do those charts suggest that it could be somewhat different?
It could be slightly below that, we might just break the previous lows by a very small margin, a couple of 100 points on the Sensex and that is the reason we have 8500 on the Sensex and on the Nifty it is much smaller, it is 2560, which is just 30 points from the lows we tested in the month of July. So not much of a downside from those levels but yes by a small margin the markets could crack.
Are the frontline techs looking weak on your charts?
The last time, I did mention technology as a sector that could lose 15 per cent. I am still maintaining my call. What happened in the last few weeks is purely distribution and looking at the technical set up, I strongly believe that we could see something negative coming out this week in technology and this is one sector, which will lead the downtrend from here.
On the flip side what shows you relative strength?
Midcaps. Even though I feel the indices might break their recent lows, I do not think the midcaps and smallcaps will do the same because it will be mainly a fall of index stocks. Along with midcaps and smallcaps, metals is one sector, which still looks a bit interesting and therefore it could outperform in the next few weeks
You have given us your price target but time wise how do you see the market playing out technically over the next six months or so?
We corrected 3500 points in a span of three weeks and therefore price wise we corrected a lot, but time wise we had not corrected and therefore even though we rallied in the last four weeks it was more of a time wise correction, which took place and this should continue now.
Time wise and price wise will coincide and therefore maybe until the month of August or early September, this medium term target could be achieved and much earlier if there is some negative news flow, which I think might just come in.
For a lot of technical analysts this has been a market, which is showing a bearish patch within and overall a stronger trend. Would you go with that, or would you say that the long-term trend of this market has been moved around or adjusted as well?
I am very convinced that we are in a long-term bull market. There are no doubts when we analyze this on monthly or quarterly charts. For any medium downtrend one needs to give atleast 3 - 5 months. We have already seen two and half months of downtrend for this market. I would like to give it another couple of months.
From September - October onwards the long- term trend should resume and in Q 2 next year, we should see the markets surpassing the high of this year.
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