The Hindu Business Line : ‘Below 18300, next crucial support is at 17300’

Mr Gautam Shah, Technical Analyst at JM Financial Services believes a failure to make a new high is a negative sign for markets. 18,300 is a crucial level to watch for, but markets may see a downtrend below that.

He sees 5-7 per cent correction over 2-3 weeks if market breaks below 18,300.

Excerpts from CNBC-TV18’s exclusive interview with Mr Gautam Shah:

What did you make out of the events of the last few days? What is it suggesting about the index next?

After many months, a few days back, the markets could not confirm to make a new high and that too after staying around the levels of closer to 20,000 and 5,950 on the Nifty. So, I think what has happened in the last 3-4 trading sessions is clearly not positive for the markets. Because after so many months we failed to make a new high, despite seeing a spectacular comeback from lower levels, I think that is clearly a negative sign.

Once we break the support of 18,300, which I think is a very important level for the next few trading sessions, the markets might just get into a downtrend.

All in all, this market is clearly facing pressure on every rise. This has happened after a long time because we are used to correcting, recovering and making a new high, which has not happened in the last few trading sessions. So, I would watch 18,300 very closely on the Sensex and once we break that, we are in for a 5-7 per cent correction, may be in the next 2-3 weeks.

You spoke about a lower top, at what level the other leg is the lower bottom. Are we very far away from forming a lower bottom or is it conceivable that we will complete that pattern?

The last time we rebounded last week, it was around that level of 18,300 and that is the reason, in case we were to close below 18,300, it could confirm a lower top and lower bottom for the markets from a short-term perspective. If we were to break 18,300, the next logical support comes in only at 17,300, which is a real big one for this market, because that is the level from where we reversed a couple of times in the month of October.

So, it is a huge level from a medium-term perspective. But short-term, the moving averages, which has had an impeccable track record in the last 3-4 months, have been broken in the last couple of days.

We have shown a lot of resilience around that 5,500 mark. If you were a Nifty trader, what would you do right now?

It is difficult trading the Nifty on a day-to-day basis. You have to keep in mind the gap openings, because of what the US markets are doing. At the same time, from an intra-day perspective, Nifty is moving about 100-150 points.

I would keep resistance levels in mind and I would use pullbacks as an opportunity to sell, because let us not forget that the Sensex has corrected 1,800 points in the last 5-6 days, Nifty has lost about 500-550 points.

What is your sense of the mid-caps, particularly hot spaces like power, which has corrected quite significantly? Technically, are they suggesting that they are close to the end of their agony or do you see more downside here?

Mid Cap is a space which gives you firsthand information that there is trouble ahead. Look at what happened in the last couple of weeks. Large Caps were consolidating, we were failing to make a new high, we were trading around 20,000. But almost everyday you had a few bunch of Mid Cap stocks moving anywhere between 20-35 per cent. Clearly, that was not sustainable.

Even though most market participants would have thought that it was dangerous, it was very difficult to be prepared for a downtrend in the Mid Cap stocks because it happened so abruptly.

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