Also read: Current situation worse than that in 2008: Marc Faber
Below is the edited transcript of his interview to CNBC-TV18.
Q: This week was a bit of a tough week. We had a couple of choppy days and the markets closed at the lowest point everyday. How would you approach the next week? Do you think this choppiness or volatility could continue?
Kedia: I am not looking merely at choppiness. There is a firm sign of a clear top coming in. I have been talking toppish for almost 5-6 weeks the day the new RBI governor made his maiden speech market had made a high of 6174 since then we dropped out 400 points. We then rose 600 points from those lows and we have come back to close roughly where the first speech from the RBI governor came.
In about 6-7 weeks, net-net Nifty has really not moved in that net change sense but a lot of things on the internals have changed.
A major risk off season is going to return upon us; the winter of risk off. I have been a little early in calling the markets top; it may have topped right now.
Q: You have been calling for a steep correction in US markets. When do you see that playing out? What kind of correlation will other asset classes like the dollar and in turn Indian equity markets have if that steep correction plays out?
Kedia: The call for a correction has been getting constantly signalled from the charts when you are anticipating. You are calling for a trend reversal which is not yet in place, the risk of getting whipsawed a few times, the risk of having to hit stops will be in place, but from the several US indices the one that has clearly made a reversal is the Nasdaq 100.
Nasdaq 100 given its nature is high-beta, there are a couple of interesting insights. While the ratio chart of Nasdaq 100 to S&P 500 has constantly been rising since the lows of 2001 when Nasdaq 100 collapsed, this 12-year outperformance of Nasdaq 100 is almost about getting over.
It is not just that index is stopped out, its outperformance too is. When I also ran a ratio chart between Nasdaq 100 and the CNX-IT, the kind of 10 percent additional upmove the CNX-IT made since I stuck my neck out that this index is topping out; even though it happened in fairly volatile fashion.
Not just trying to hang onto a view that has so far been a loser in last one month, but the CNX-IT has had underperformed the Nasdaq 100.
Going forward, if my thesis comes right on a winter of risk-off and pretty much everything in the world will go down except for the US dollar, then who knows aversion to investment in IT stocks may combine that with equity beta. The CNX-IT has a far strong beta with the Nifty index than with the INR-USD. That was one way to correlate the US market.
Another way is the US equity markets are the last ones to move in short-term trading cycles. Korea has made a clear-cut top out. Last three weeks, basic technical analysts will tell you that market is no longer bullish; it has definitely reversed. China was not bullish.
You do not count Japan really in Asia, but Japan is inside a fulcrum. It is going to breakout either ways. I am tipping my head. It is not going to breakout upwards. So while the US markets kept on alluding a sense of strength there has been a distribution going on elsewhere.
It looks like once these markets top out, the complacency that is going up will be abandoned very rapidly.
Disclaimer: The above views are the personal analysis of Sushil Kedia, President ATMA and do not reflect any opinion of ATMA
To know more about ATMA, please visit http://www.atma-india.net/
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