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“Like the pharma sector, metals will undergo a deep correction. The Nifty metals index is expected to drop somewhere close to 5200. It is still not finished but it still got one more leg on the upcycle left,” says Jai Bala, Chief Market Technician, Cashthechaos.com.


What do you make of what is happening with Indian markets, the US markets and some of the asset classes across the world that are looking quite weird?
I have been saying since October-November last year that now we are setting up for a deep bull market correction and that has been playing out. We are somewhere near middle portion of that and when it comes to the US markets, the FAANG stocks, the NASDAQ index, the semiconductor index are all in a firmly entrenched downtrend.

We are going to see a little bit of a relief rally along the way but when it comes to the S&P, I expect it to drop to somewhere close to 3,200. Coming to the Indian Nifty, I expect it to drop to somewhere close to 14,000 before this correction comes to an end. Maybe we can evaluate if it can go a little lower but at the moment, these are the minimum price adjectives.

Do you think the panic selling has already set in or is it yet to come?
We have not seen panic selling yet. We have just seen the first thousand points down for the Dow Jones Industrial average and we are going to see more of this somewhere near the middle portion of the correction. We see that kind of panic selling towards the end of the decline and this could probably be the sample of what is to come in November. It looks scary but those who can preserve their emotional quotient and those who have preserved their cash will have a great buying opportunity around July-August.

What do you make of what is happening with yield, dollar index and maybe even Bitcoin, if you track it?
Of course, I track most of these asset classes. So, 10-year yields in the US have got a very important price adjective close to 325 bps. That is where it is heading and this has been my view since July of last year and probably in January of last year. It has been playing out to perfection and most of the yields have crossed significant resistance.

The US 10-year yield has crossed the 40-year trendline from the 1980s and the German yields are also around those levels. What is important at this point is the dollar index which is the only one which has been acting as a safe haven. It is not Bitcoin, it is not gold. So although gold is performing relatively okay, Bitcoin has been a laggard and that was already an indication that animal spirits were reigning as early as last year and that would have given people who track cross assets an indication.

Bitcoin has still got an important support level around 29000. My base thesis has been that it will come somewhere close to that and resume its uptrend. Bitcoin has gone a much precipitous decline below that but my base case is that it does not go but we are very cautious.

This is a good time to keep your powder dry because it is going to get worse before it gets better. Which are those levels that investors should watch out for to enter into the markets if they have to?
In the IT sector, somewhere close to 20,000- 26,000 would be a nice entry point so watch out for. Right now, it has got a little more downside to work with. Also like the pharma sector, metals will undergo a deep correction. The Nifty metals index is expected to drop somewhere close to 5200. It is still not finished but it still got one more leg on the upcycle left. But as I said earlier, to catch all this, one has to have patience. It is of paramount importance at this moment. It has always been since January of this year. So continue to have that patience and wait for the right opportunity. You will get those low hanging fruits provided you are maintaining the powder dry.

As far as IT goes, given the kind of draw downs that we are seeing in the US market and especially in the NASDAQ, some experts believe that there is more downside and a large downside when it comes to the Indian IT sector. Don’t you concur with that view at all?
I had said in January itself that this is a corrective decline which is new for the Nifty IT index. My guess is its price adjective is close to 27,000 on the Nifty IT index. We are just about 30,000 and so we got at least another 10% to go for the index. The individual stocks will drop a little lower and so even the FAANG Index is likely to drop somewhere close to 4,400 and it has just done part of that move but the overall set up in the long term is that we have got a much bigger upside to come through for the technology space.

The headwinds that we are seeing is just a corrective decline and we have got little more downsides to work with. The market structure is endogenous, it has not got to do with exogenous factors. If it sounds contrarian, that is what it is.

Thanks

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