Market View: June 20

Markets have been trading in the range for the past few weeks. And surprisingly, have hold very well after the recent up move. One would have expected the correction to have come thick and fast, but the markets have refused to comply with the bear wishes. There are many people waiting for the market to fall, and as the reports claim, there is plenty of fund lying on the sidelines which has to be deployed.

I’ve become slightly bearish now on the markets, and think everything has moved up all too fast and too much. As for the markets holding up, I think its more of funds trying to play catch up, and investing late into the rally. We have seen good buying by the domestic funds in the past couple of weeks.

There are plenty of things that could decide the market moves in the coming weeks. And given that the list is quite long, I would expect the volatility to move higher from the current levels.

1. Quarterly results of domestic companies: With the result season starting, we may have a few surprises. Already we have seen some patterns with the advance tax numbers (with banks posting good results, while manufacturing sector lagging), and we may see high dispersion between sectors in their results.

2. US Bank results: No longer the size they used to be a year or two back, the US bank results still are eagerly awaited. They had all posted very good numbers in the last quarter, and another good showing could really seal off the recession here. However, a set of bad numbers could really hurt badly as well.

3. Indian Budget: With budget coming in the first week of July, expectations are quite high with the dream team. However, as with the T20 World Cup, expectations may well have exceeded the upcoming reality.

4. Swine Flu: Markets have completely stopped reacting to any news on this front. With fresh cases being reported almost everyday now, it might surprise the markets on the downside.

5. Budget Deficits: With all the governments around the world facing huge and still mounting budget deficit, we may see rates rising through the roof. Already we have had a failed auction, and a couple more could be the trigger for this.

6. Oil: Oil has slowly moved from 40-something to 70s now, and its not far away from where it would start hurting India. A level above 80 in the next couple of weeks, and then we would start having pressure on the currency again.

7. FII Selling: FIIs have been sellers in the market over the last 1 month or so, and if the selling continues, we may well see both INR and Equity Markets falling back to the earlier lows.

The Inflection Point?

The economists and traders around the world are engaged in the debate whether its a bear market rally, or the markets have actually turned around. The doom sayers are leaving no-stone to make everyone believe that their time under the sun hasn't finished. Whereas, the investors and money managers around are world are jumping to buy at every opportunity.

Its very difficult to say as of now which way the markets are headed. The short term momentum is certainly on the long side, but the valuations are getting costlier by the day. And unless the economy and earnings show a quick turnaround, we may see an over-heated stock market.

S&P has stayed close to 900 range for a few weeks now, and it has failed to break on the either side. There is good consolidation happening around this range, we may see a decisive move in either side very soon. If one is long vol, it may be a better idea to hedge less frequently as markets may be trending in one direction from here. I would expect S&P to be either below 800 levels or over 1000 levels by the end of June.

VIX also has been staying close to its 30 support levels, and even though it the breached it for a couple of days, it has failed to remain below the range for a longer period. We may see a gradual move up in volatility in the coming days, and I would rather be long vols at these levels.

Nifty has been playing around in the 4200-4500 range now, and contrary to all the initial expectations, markets haven't yet broken below the levels reached after the 'Super Monday'. Shorts have been cleared in the system, and the futures premium has jumped to high levels. Might seem silly to say, but I don't think markets are going to cross 4600-4700 range in the near term. With budget around the corner, long term investors would shy away from committing large funds.

EUR and GBP have been gaining against the USD, and last I saw, EUR was trading at 1.41 levels. Somehow, I am not very bullish on the Eurozone, and think the currency would depreciate. US economy in the shambles, and with General Motors filing for bankruptcy, another chapter in the US economic history comes to an end. However, I don't think EUR or GBP are the alternatives for the future.

Gold has been climbing for over a month now, and is trading close to 950 levels (mostly on the back of USD weakness). Oil has also been moving up, and is currently at 65. If the Oil keeps climbing, and moves into the 80+ zone, we may all be back to square one.

Market View: Gone in 60 secs

Election results came out on the weekend, and all the remaining bears in the market were brutally squeezed by the rising euphoria. We saw the first ever up-circuit in the market, and in less than 60 seconds, BSE sensex had risen by more than 2100 points.

Everything has changed in the markets, and FII continues to pump in billions into the markets. As things stand, we may be in for a long up move. There is a big gap in the market, and a lot of people have completely missed this rally.

Like someone said, one shouldn't worry too much about a single day's move. The trick is just to survive to see another day.

Market View: May 2009

Markets world-wide have seen the mother of all rallys in the past 7-8 weeks, and all across stocks have risen by anywhere between 30-100%. Nifty has moved from its 2700-2800 levels to 3600+ levels!!!

The big turnaround has been led by good financial results (in a system oozing with liquidity, that should have been expected), and some aggressive moves by the fed and treasury officials in US. Everyone could see the 'green shoots' in the economy in the form of falling unemploment numbers, rising output levels, rising retail sales, etc. And the result was an almost angry rally, wiping out all the 'nay-sayers'.

As we stand at the present, everything is up, and lot of people have shifted from the bear-camp to the bull-camp. March was scary as everyone (including me) was giving lower and lower target levels for the Nifty (with people quoting figures as low as 1200!!!). Now there is greater sanity in the market, and there is a suitable opposition to all the gloom-and-doom predicators.

S&P has been flirting with the 900 levels for whole of this week, and after breaking it, has come down again. If it breaks above 900 once more, a move towards 1000 is highly possible. However, if it fails to break it in in another week or so, then we may see the return of blood on the street.

Gold surprisingly has been going up even during this rally, and is currently at 925 levels. With all this bullishness, I would have expected gold to trade at sub-800 levels. So, there is a correction due in atleast one of the markets.

Credit markets have been improving, and JPM Emerging Market index is now at 500 levels. Still much above the pre-Lehman times, but this has improved considerably from its 800-levels seen in October'08.

My view on the Indian Market is that we may see this rally continue till 4000 levels. Unless something goes really wrong worldwide, we may see everything moving up. Elections, which have been the talk of the tinsel town over the past couple of months, may turn out to be a non-event. Either the NDA, or UPA could be making the parliament, and who amongst the two noone gives a damn.

EUR has surprisingly out-performed against USD, and has climbed to 1.35+ levels. However, I still believe its a ticking time-bomb, and might turn out to be very difficult to diffuse (unless the central banks round the world keep pumping liquidity into the system).

The Best Aspect Of Trading

The best part about trading is that you just need to be good at something. One can spend all their lifetime trading just one stock, or one sector, and make good amount of money.

I am trying to understand a few of the stocks, and form views on them. Would be starting with a very small set (2 or 3). Over time, would increase the set to include about top 10 names in the market.

Put Call Ratio

I was looking over the internet to find some interesting articles on the Put/Call Ratio based strategies. As of now, have just found out one:

1. Put/Call ratio in themselves are not very helpful in predicting the market direction. However, extreme values (compared with say 50DMA) may indicate a rise/fall in market volatility.

Addendum (March 28, 2009):

a. Usually Volume PCR is a more useful indicator during the day as it accurately reflects the ‘current’ market activity. OI PCR, on the  other hand, is slightly out-dated, and may be skewed by long-tenor options as well as past trades (which may be deeply OTM/illiquid now).

b. PCR works as a contrarian indicator in the bear markets (when majority of the people are wrong). When the ratio reaches high levels, it indicates that there is already a lot of ‘protection bought’ by the market, and hence the chances of a crash are relatively lower. On the other hand, when the ratio becomes abnormally low, then it reflects the ‘euphoria’ and ‘complacency’ in the market.

It works exactly the reverse during the bull market (when majority is right). A low PCR indicates people expecting markets to go up, and it indicates that.

Market View: March 20

Markets have rallied globally in the past couple of weeks, S&P has briefly flirted with 800 levels again (after falling from 800 to 680 in almost a single breath).

Going by the volatility in the market, trading has become extremely difficult. Markets have been moving 10-15% every couple of weeks. (Similar is the case with FX markets where we have seen lifetime highs and lows for a lot of currency pairs in the same year).
Expiry view has gone completely wrong, and now I believe that the down leg would start after the expiry. With impending results announcements, and the upcoming elections, there is plenty of bad news that could come out.

I'm still sticking with the negative view, and think that the markets are now in for a steep crash. With rising unemployment all over the world, a 20% rally is the last thing one would expect. We may see a 2400-2500 expiry range for the April and May expiry from here.

US Dollar: Inevitable Fall?

In their latest policy action, Fed has started buying US Treasury Bills from the market. Finally, they have realized to the reality that they are running out of ammunitions. And this is the first indicator that US economy may be in much deeper sh*t than everyone thinks it is.

The Fed ran out of ammunition as the rates were already hovering around zero. And to provide more incentives to the market, they were left with one last option - printing money. So, on one hand, the government is running huge deficits, and is issuing bonds to finance them. On the other hand, it is printing more $ to repay the same. This is as blatant a misuse of their stock currency status as is possible.

The world markets have reacted sharply to the news, and USD is down against all the major currencies. GBP and EUR are currently trading at YTD highs of 1.44 and 1.36. Initially, I had a view that economies of UK and Europe are in shambles, and we may see massive devaluation of their currencies. Now it seems that USD has also joined the club.

I think we may see USD weakening a lot from here. China, the world's largest investor in the US treasury has openly expressed their concerns over their holding, and going forward I see more of their investments going into EUR, GBP, JPY, and Gold. In addition, they might prefer investing in commodities rather than US T-bonds. And once this process starts, USD may fall off a cliff, literally.

I would be short USDINR at levels of 51-52, with a year-end target of 47. We may see INR weakening to 53-54 levels in the short term (on the back of fiscal concerns, and election uncertainty), but I think the issues with USD are much serious and long term in nature.

Market View: March 13

I have been wrong in my market views so far for this month. As against the initial expectations of market falling towards 2500-2600 band, we have seen major rally across the world for the last 2 days. S&P after moving from 800 to 680 levels in a week has bounced up sharply to 750 levels.

However, keeping the initial view intact, I still believe that we would be seeing a 2500-2600 expiry range. Nifty is currently trading at 2720 levels (which is a very strong resistance level now). I don't think we would gap open on the +ve side on monday (unless US moves by another 2-3% today, which seems unlikely).

This rally was also long overdue as markets had become over-sold. Nifty futures were trading at a discount of ~100 bps. And any gap-up opening was bound to cause huge short-covering - which is exactly what happened today. Now the Nifty futures discount have come down to 3 points, from 20-25 levels earlier. Now it seems that markets have over-reacted on the +ve side, and we would soon see a discount in the range of 10-12 points.

INR has remained flat at 51.5 levels, and going by the quantum of FII selling, I think we may even see 54 levels soon. Add to it the possibility of rate cuts.

Market View: March 3

February expiry was a surprise of sorts for everyone, though market returned to their earlier levels on the first couple of days of march expiry. Nifty futures have broken below the 2600 levels, and unless there is a huge swing in the US in either direction, we may have an expiry close to 2600 levels.

In US, S&P has broken its 800 support, and has sunk to 700 levels. It might rest here for some time, and then go towards the 600 support. I guess 600 would be the target level for s&P for this year end, and we may reach there sooner than later.

Europe is in a complete mess, and its surprising how the currecy hasn't broken down completely. I won't be surprised to see the Euro break down to 1.0 levels, and GBP go down to 1.20 levels. Given the high vols in the currency markets, we may see huge swings in all the currencies.

Gold crossed the USD 1000 resistance briefly, and crossed INR 17000 level in India. However, it has returned to slightly saner levels at 900, and I think it might go all the way down to 700. I would be short the metal at these levels.

On the volatility front, we haven't seen too much volatility in the markets. Even though we are within breathing distance of the October lows, the market seems to be taking it very clamly. There is slow and steady drift in the markets, and this way, we might see 2200 levels in Nifty by June 2009. March-April results may the next big trigger for the world markets. And going by the trend, the results are going to come much below the consenses estimates.