Jai Bala on when we will see the next big market correction

“Chemicals, logistics and cement can be positioned from a short term perspective but from an investment point, we just have to make use of this movement very close to the record highs to lighten up and get into cash positions,” says Jai Bala, Chief Market Technician, Cashthechaos.com

What will you be tracking once we cross 18,500? Where to go from there?
The Indian market is slightly outperforming the world markets.This in my opinion is not sustainable but what the markets are going to do in the extreme short term is that it is going to go back very close to the record highs registered in October 2021 or slightly exceed that. Then the markets are going to begin a larger correction.

So there are two possibilities within this; one is getting to the close to the record highs and another one is slightly exceeding it and then coming down. So this basically is not a sustainable uptrend and it is likely to peak very near to the record highs or slightly exceed the record highs.

Is the leadership going to continue with the banking space the bank index today is 1.7% higher while the Nifty is pretty much flat. What is that telling you?
The path of least resistance for the banking index is higher. There is no doubt about it at the moment but if you look at the momentum charts, the banking stocks are losing momentum but as long as the banking index stays above 39,250, it is quite safe. There are two key stocks here; one is SBI and the other one is ICICI.

As long as SBI stays above Rs 530 and ICICI Bank stays above Rs 870-880, the index remains safe. Once the turn starts below these levels for these two stocks, that will be the reason for bringing down the indices. So watch out for this as long as these two stocks are pivotal for the sector. As long as they stay above these key levels, one can stay long in the sector.

A lot of our technical experts have been talking about the strength in IndusInd Bank and Axis Bank. Don;t they look interesting to you?
Most of the banking names have rallied quite a bit and it is fairly late. That is the only reason why I am not talking about it and the structure for SBI and ICICI is quite obvious and related to these two. The rest of packs like IndusInd are underperformers on a relative scale. Given that the leaders within the sector are coming close to an exhaustion point, I would not be too enthusiastic about the other names there.

What is your outlook on the IT index? We have seen some of those stocks pan out in today’s Wednesday’s session. It has been an across-the-board selloff although now the recovery has kicked in. Do you have a similar view on banks as well as IT?
When it comes to IT, I am bullish from the medium term perspective but it could have a little bit of downside to work with. It is not quite clear whether it is going to base above the 26,100 it registered in July or it is going to slightly exceed that and then start putting in a medium term bottom.

I am bullish on the IT sector from a medium term perspective as long as the index stays above 24,400. If it goes below that, I will have to revise that medium term bullishness and probably push it for the first quarter of 2023 but as things stand now, it is still undergoing a basing pattern and until that changes, I am not too bullish on the IT space from a short term perspective.

What is your take regarding the entire cement pack? All the counters are up between 10% and 20%. The likes of JK Cement etc are up 20-25% in last one week. What does the chart checks suggest?
The sector is looking quite positive and probably it is going to outperform even if the market were to start correcting. I like Birla Corp within the space and I am bullish on it from a medium term perspective.

From a short term perspective, India Cements and JK Lakshmi have already moved. So, I would tick that out of the equation only because the risk reward from this point onwards at 635 for JK Lakshmi Cement is not that attractive, having gone 2.5% up today. The sector is looking quite positive.

Since you track the global indicators quite closely, what is your sense on the dollar index as well as crude?
The dollar index is ready for a consolidation and it is not quite clear that the euro is saying that the dollar index is really for a corrective consolidation above 104; but the yen crossed it and that is saying that probably there is a little bit of higher high left for the dollar index. But whatever be the correction, which is either going to start above the 110 mark which has already commenced, this is only a short term correction.
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The dollar index from a medium term perspective is probably heading for 120 and from a very long term perspective, like a three-year plus perspective, it is headed for 138. So do not get too enthused about the decline in the dollar. It has got a very strong structure from a medium to long term.

What is the outlook in terms of the levels that you are tracking on the metals index? Would you be advocating that at the current levels, metals look like a good buying opportunity?
Nifty metals in my opinion it is just a relief rally but a sizable relief rally and it has played out quite well and it is pretty late to take action there. But when it comes to international precious metals, I am slightly bullish on gold and silver from a short term. Probably silver is heading somewhere close to 21.5 and gold is heading somewhere close to 1,850 but that is really a short-term perspective. As the precious metals come into this zone, it can give a better clarity as to whether it is a medium term move or just a short term move.

What would be your strategy now? Would you advise looking at the high beta space for the short term or positioning yourself low beta for that slightly medium to long-term timeframe?
You have to be very selective here. It might even be a good time to lighten up on your investment portfolio. You need not go to 100% cash but start raising cash to a certain level and choose sectors quite wisely.

We feel cement is looking quite attractive at the current levels. Even the logistics sector is looking quite good as also selective stocks within the chemical space. So chemicals, logistics and cement can be positioned from a short term perspective but from an investment point, we just have to make use of this movement very close to the record highs to lighten up and get into cash positions.