Nifty Target would be 2000 - Weakness developing in stock markets

Daryl Guppy, Founder and Director,, said he would be taking profits now and would go short on the Nifty and Sensex.

Daryl Guppy, Founder and Director,, said he would be taking profits now and would go short on the Nifty and Sensex. “The weakness that is developing at the moment suggests that we are looking at downside targets of around 2,000 for the Nifty.”

Commenting on commodities, he said crude is likely to trade between USD 24 and USD 38 per barrel. He sees resistance at USD 48-50 per barrel. Guppy feels gold could resume its uptrend given the likely dollar weakness.

Also Read: Stock Markets in 2009 would be volatile - Marc Faber

Here is a verbatim transcript of the exclusive interview with Daryl Guppy on CNBC-TV18.

Q: Does it seem like there is a bit more to be played on the upside in this pullback rally?
A: No, what we are actually seeing is a false rally which has developed out of this symmetrical triangle both on the Nifty and the Sensex. Initially on the breakout from this triangle, we expected to have a target around 4,000, but this weakness that is developing at the moment suggests that we are looking at downside targets around 2,000 for the Nifty.

Q: You think instead of an explosive breakout, the chances of a dramatic reversal or a breakdown are higher again?
A: Unlikely to be moving to those sort of levels. With the Sensex, for instance, we are looking at 6,000 as downside target. If we get a pullout from this equilateral triangle on the upside, then we are potentially looking at 12,500 as upside target. However, the weakness is developing, so we are more likely to be looking at downside targets at this stage.

Q: Is that the formation that you are spotting across other Asian markets as well that the rally of the last four-five weeks is beginning to fizzle out?
A: Yes, we are getting to see that this rally is beginning to fizzle out. This equilateral triangle has developed in a number of regional index markets, but we are not seeing a lead coming out of the US, although we have the same equilateral triangle pattern in both the Dow, Nasdaq, and S&P. We have not yet seen the lead from US developing. So to that extent, both regional markets and Indian markets have acted in anticipation of what is happening with the Dow.

Q: There seems to be though a consensus building that most markets or at least Asian markets might have put a durable bottom in place with what we saw in October. Would you go with that or do you think any return of downward momentum might actually take us all the way back to those levels?
A: I certainly think that the resumption of downward momentum will take this below October levels. The October levels in many cases did not actually stop at support levels, they sort of hung in the middle of the air. There is no technical reason why market should have paused at those levels. So, a retest of those levels will either confirm the support which would be the second hit at that level or alternatively prove the weakness of that support and plunges into – lets call it ‑ depression targets rather than recession targets.

The lows that were established in October have taken the US to around the 7,500 mark, where the recession targets are different from the depression targets. If those lows set in the October period do not hold, then we are moving into a depression environment.

Q: What do you think about gold?
A: With gold we are seeing a resumption of the uptrend and a breakthrough. The most important long-term uptrendlines are now acting as resistance levels. So, potentially we have got gold moving up between USD 800 and USD 900 per ounce potentially towards USD 1,000 per ounce, but let us not get too carried away at this stage. Gold is anticipating some developing weakness in the dollar particularly as repatriates of the US back to US begins to tail off.

Q: Where do you think crude is headed now?
A: What we are seeing with crude is a fall below the support level at USD 38 per barrel. The next lower level for crude oil is sitting down at USD 24 per barrel. There is a high probability that oil will continue to trade between USD 24 and USD 38 per barrel which is also act as resistance levels. If USD 38 per barrel is able to continue to hold as support, then we will see some sideways trading between USD 38 per barrel and the next resistance level at around USD 48-50 per barrel. But there is a high probability that we will be looking at oil trading at around USD 24-25 per barrel moving forward in the early part of 2009.

Q: If you were a trader who was trading the Nifty long over the last few weeks, would you start to take profits now or start any short positions here. Do you think holding on to those long positions for slightly higher levels would be prudent?
A: I would be very prudent at this stage. I will be taking profits as my Christmas present as quickly as possible. The opportunity at the moment is to go short on both the Nifty and the Sensex to move back towards this mid-point on this equilateral triangle level.

Q: Any stocks in India which are showing particular weakness on the charts if you are playing for the downside?
A: There are number of stocks that are showing continuation of downtrend pressure. More importantly, there are number of stocks that are showing good breakout activity. For trading these breakout activities ‑ for instance with State Bank of India or ITC – these are short-term trades that are lasting 3-5-10 days. On the downside pressure, we still have many stocks such as Tata Motors (Read: Tata Motors downgraded) and Tata Steel which are showing strong downtrends. The rallies that are developing are rallies in the context of those downtrends.

Q: What do you think about NTPC and ACC?
A: With ACC, we are looking for a breakout that is developing quite strongly. So, we are looking at a rally breakout with a target sitting at around Rs 650 level.

With NTPC, we are looking at good upside target on rally. This is important as these are rally trade rather than long-term trend changers.