*** Deep Thoughts on Market ***
- Thread starter xtiger
- Start date
Market warns - 18 May 2006
Market warns - 18 May 2006
After yesterday's market, everybody would have thought...wow bull market is back. But look at how US market has fallen, and with it, there is a massive sell off in Asian markets. If market goes down today, it's a confirmation that we are not going to go up for time being with 3700 as major barrier for some time to come. It's a Sell on rally market. (Please read my yesterday outlook, and that's precisely I mentioned)
Why there is a sell of in US market?
The US Labor Department reported April CPI +0.6% and Core CPI +0.3%. On a seasonally-adjusted basis, the CPI is up 5.1% in 2006, compared to a rise of 3.4% in 2005. In layman terms, threat of inflation is for real. So, Fed may not pause and tighten the US economy by raising interest rates. Rising rates are not good for economy, as they slow down consumer spending, and eventually hit corporate profits and workforce reduction. US may see a slow down in second half of CY 2006.
Why it will lead to sell off in Asia and Emerging markets?
Asian economy is export oriented and slow down in US means lower exports, and hence direct impact on these economies. Rising interest rates also means liquidity problem, and emerging markets is the first asset class that gets hit by liquidity tightening.
Why inflation threat has come up suddenly?
The markets clearly chose to ignore the outlook of most economists in past few months and believed that "there is little/no inflation" or that "inflation is under control". 4% inflation - doesn't it sound good? Look around, do you see prices rising by just 4%. All agricultural commodities have shot up the roof, forget about non agricultural stuff.
There is massive inflation and that the government measures are grossly underestimating it.
Problem - Central Banks all across the world measure inflation in a wrong way.
I guess the problem of inflation is even more bigger in India as we are still keeping the oil price shock away from economy. Atleast, that's what politicians think. I call this instant gratification for delayed shock. We should be ready for massive economic shock because of this ridiculous policy. If prices of oil would have increased in small doses, atleast our economy would have absorbed it in a gradual way, may be with a mild slow down. Now, lets understand the implication of not increasing oil price -
1. Current account deficit is widening because of huge oil import bill. It will keep pressure on rupee; and will increase inflation.
2. Government will have to eventually fund the deficit oil companies are facing - by issuing bonds or raising taxes. Both these measure mean cost of capital will rise, as there will be more demand for money. Government has already made its intention clear on tax exemptions - so we must get ready to pay more taxes. Higher taxes, and higher interest rates mean slow down in consumer spending in India too.
India is still in a secular growth phase, but I fear the current Government is doing all it can do to screw us big time, and global help is also on the way in terms of US completely screwing their economy by first creating a massive inflation.
What's the outlook for the day?
Massive Sell off. I hope I am wrong.
The issue is how come one day everyone is bullish and market goes up by 300+ points, and next day there is a threat of massive sell off. I call it intense battle between bulls and bears. Bears are still scared of bulls, as they have been beaten handsomely by bulls in recent past, and this volatility will continue till one side comprehensively defeats other. Economic indicators suggest bears will have more upper hand atleast for next few months.
source: e-group friends
cheers,
nkpanjiyar
Market warns - 18 May 2006
After yesterday's market, everybody would have thought...wow bull market is back. But look at how US market has fallen, and with it, there is a massive sell off in Asian markets. If market goes down today, it's a confirmation that we are not going to go up for time being with 3700 as major barrier for some time to come. It's a Sell on rally market. (Please read my yesterday outlook, and that's precisely I mentioned)
Why there is a sell of in US market?
The US Labor Department reported April CPI +0.6% and Core CPI +0.3%. On a seasonally-adjusted basis, the CPI is up 5.1% in 2006, compared to a rise of 3.4% in 2005. In layman terms, threat of inflation is for real. So, Fed may not pause and tighten the US economy by raising interest rates. Rising rates are not good for economy, as they slow down consumer spending, and eventually hit corporate profits and workforce reduction. US may see a slow down in second half of CY 2006.
Why it will lead to sell off in Asia and Emerging markets?
Asian economy is export oriented and slow down in US means lower exports, and hence direct impact on these economies. Rising interest rates also means liquidity problem, and emerging markets is the first asset class that gets hit by liquidity tightening.
Why inflation threat has come up suddenly?
The markets clearly chose to ignore the outlook of most economists in past few months and believed that "there is little/no inflation" or that "inflation is under control". 4% inflation - doesn't it sound good? Look around, do you see prices rising by just 4%. All agricultural commodities have shot up the roof, forget about non agricultural stuff.
There is massive inflation and that the government measures are grossly underestimating it.
Problem - Central Banks all across the world measure inflation in a wrong way.
I guess the problem of inflation is even more bigger in India as we are still keeping the oil price shock away from economy. Atleast, that's what politicians think. I call this instant gratification for delayed shock. We should be ready for massive economic shock because of this ridiculous policy. If prices of oil would have increased in small doses, atleast our economy would have absorbed it in a gradual way, may be with a mild slow down. Now, lets understand the implication of not increasing oil price -
1. Current account deficit is widening because of huge oil import bill. It will keep pressure on rupee; and will increase inflation.
2. Government will have to eventually fund the deficit oil companies are facing - by issuing bonds or raising taxes. Both these measure mean cost of capital will rise, as there will be more demand for money. Government has already made its intention clear on tax exemptions - so we must get ready to pay more taxes. Higher taxes, and higher interest rates mean slow down in consumer spending in India too.
India is still in a secular growth phase, but I fear the current Government is doing all it can do to screw us big time, and global help is also on the way in terms of US completely screwing their economy by first creating a massive inflation.
What's the outlook for the day?
Massive Sell off. I hope I am wrong.
The issue is how come one day everyone is bullish and market goes up by 300+ points, and next day there is a threat of massive sell off. I call it intense battle between bulls and bears. Bears are still scared of bulls, as they have been beaten handsomely by bulls in recent past, and this volatility will continue till one side comprehensively defeats other. Economic indicators suggest bears will have more upper hand atleast for next few months.
source: e-group friends
cheers,
nkpanjiyar
19 May 2006 !!!
19 May 2006 !!!
Friends,
We are living in an era where access to information is no longer a competitive advantage. If everyone feels that economy will do well, the market will discount it immediately by rallying 100s of points; and the same way, if everyone feels inflation is a threat and FIIs can slow down, the market will discount it by falling 100s of points instantly. I fail to understand how people think that there will be orderly correction, and market will slowly come down. Orderly correction happens only where there is lack of information. In todays environment, there is always plenty of news which market has to digest on daily basis. We are in a period of Instant Price Discovery. Volatility is manifestation of this process.
"In the short run, the market is a voting machine but in long run, the market is a weighing machine." (Benjamin Graham)
Its difficult to predict the outcome today about who will win today bulls or bears Its too close to call.
-ves:
* US economy Will it slow down as predicted?
* US trade deficit and dollar weakness
* Infrastructure constraints in Indian economy
* Rising Crude Prices and Indian current account deficit
* Weatherman prediction and Arrival of Monsoon. How accurate is the prediction?
* How long the Government can sustain without meaningful reforms on policy fronts. Its a fight between investors patience and government inaction. Lets see who gives up first.
+ves:
* Indian economy has a strong momentum
* Indian middle class is becoming a heck of hungry consumer buying stuff and buying on credit too.
cheers,
nkpanjiyar
19 May 2006 !!!
Friends,
We are living in an era where access to information is no longer a competitive advantage. If everyone feels that economy will do well, the market will discount it immediately by rallying 100s of points; and the same way, if everyone feels inflation is a threat and FIIs can slow down, the market will discount it by falling 100s of points instantly. I fail to understand how people think that there will be orderly correction, and market will slowly come down. Orderly correction happens only where there is lack of information. In todays environment, there is always plenty of news which market has to digest on daily basis. We are in a period of Instant Price Discovery. Volatility is manifestation of this process.
"In the short run, the market is a voting machine but in long run, the market is a weighing machine." (Benjamin Graham)
Its difficult to predict the outcome today about who will win today bulls or bears Its too close to call.
-ves:
* US economy Will it slow down as predicted?
* US trade deficit and dollar weakness
* Infrastructure constraints in Indian economy
* Rising Crude Prices and Indian current account deficit
* Weatherman prediction and Arrival of Monsoon. How accurate is the prediction?
* How long the Government can sustain without meaningful reforms on policy fronts. Its a fight between investors patience and government inaction. Lets see who gives up first.
+ves:
* Indian economy has a strong momentum
* Indian middle class is becoming a heck of hungry consumer buying stuff and buying on credit too.
cheers,
nkpanjiyar
22 May 2006 !!!
22 May 2006 !!!
"When markets go up, there are no resistances; when markets go down, there are no supports
Everyone is asking this question Is the party over for bulls?
Before we answer this question, lets review the last 10 trading sessions of Sensex
May 08 Bulls beat bears by 102 pts
May 09 Bulls beat bears by 51 pts
May 10 Bulls beat bears by 98 pts
May 11 Bears beat bulls by 176 pts
May 12 Bears beat bulls by 150 pts
May 15 Bears beat bulls by 462 pts
May 16 Bulls beat bears by 51 pts
May 17 Bulls beat bears by 344 pts
May 18 Bears beat bulls by 826 pts
May 19 Bears beat bulls by 452 pts
Well, Series leveled 5-5, then why bulls are looking so depressed. Look at the way bears have beaten the bulls. Its not the defeat that has stunned the bulls but the way they have been beaten.
How come suddenly, bulls that were playing with such great technique started losing. As in cricket, we say class is permanent but form is temporary; the same applies to India Story. India Story bulls have lost their form, and we can hope that they will find their form sooner than later. The only concern is that Left ideology should not get chance to occupy Chief Selector position, else bulls will lose their position in the team. We do not want to see another Saurav Ganguly episode. The fact of the matter is that Bulls have lost confidence, and the momentum is now with bears. Remember, everything in life is based on momentum. The period momentum gets disrupted; it takes lot of force to get it back. Now, heres another statistics It took just 7 trading sessions to come down from 12600 to 11000, whereas it took 28 trading session to scale the same height. It always takes more force to go up than to go down, and with confidence of bullsjolted, it will be a while, before bulls will be back. So, I put my money on the fact Party is over for bulls for time being. I will be very happy if party resumes.
Is this a correction or trend reversal?
I dont know. If you are 100% invested, you may hope its a correction. But What I understand, in correction, people book profits. They do not dump shares, at any cost. The most troubling part is the high volume selling, and the length of the bar in down direction. What about the money sitting on the sidelines? Well, Liquidity chases momentum; and the minute momentum is broken, liquidity dries out.
cont..
22 May 2006 !!!
"When markets go up, there are no resistances; when markets go down, there are no supports
Everyone is asking this question Is the party over for bulls?
Before we answer this question, lets review the last 10 trading sessions of Sensex
May 08 Bulls beat bears by 102 pts
May 09 Bulls beat bears by 51 pts
May 10 Bulls beat bears by 98 pts
May 11 Bears beat bulls by 176 pts
May 12 Bears beat bulls by 150 pts
May 15 Bears beat bulls by 462 pts
May 16 Bulls beat bears by 51 pts
May 17 Bulls beat bears by 344 pts
May 18 Bears beat bulls by 826 pts
May 19 Bears beat bulls by 452 pts
Well, Series leveled 5-5, then why bulls are looking so depressed. Look at the way bears have beaten the bulls. Its not the defeat that has stunned the bulls but the way they have been beaten.
How come suddenly, bulls that were playing with such great technique started losing. As in cricket, we say class is permanent but form is temporary; the same applies to India Story. India Story bulls have lost their form, and we can hope that they will find their form sooner than later. The only concern is that Left ideology should not get chance to occupy Chief Selector position, else bulls will lose their position in the team. We do not want to see another Saurav Ganguly episode. The fact of the matter is that Bulls have lost confidence, and the momentum is now with bears. Remember, everything in life is based on momentum. The period momentum gets disrupted; it takes lot of force to get it back. Now, heres another statistics It took just 7 trading sessions to come down from 12600 to 11000, whereas it took 28 trading session to scale the same height. It always takes more force to go up than to go down, and with confidence of bullsjolted, it will be a while, before bulls will be back. So, I put my money on the fact Party is over for bulls for time being. I will be very happy if party resumes.
Is this a correction or trend reversal?
I dont know. If you are 100% invested, you may hope its a correction. But What I understand, in correction, people book profits. They do not dump shares, at any cost. The most troubling part is the high volume selling, and the length of the bar in down direction. What about the money sitting on the sidelines? Well, Liquidity chases momentum; and the minute momentum is broken, liquidity dries out.
cont..
continued from previous post...
22 May 2006 !!!
continued from previous post...
Where this all leads to?
Predicting market is always fraught with risk. My objective is not to predict but to give indications of possible direction, and make you aware of the reason. Please note this is not based on any technical analysis. I can be terribly wrong also.
Phase *** Description *** Current Status *** Duration
I *** Sell Off Its instant, gives no time to react lot of people think its minor correction *** Complete *** 2-3 sessions(May 11-12-15)
IIA *** Fight back from bulls Bears defeat bulls comprehensively *** In progress *** 1 session to 1 month
IIB *** Panic Sell off *** In progress *** 1 session to 1 month
III *** Lack of Buying and Selling There is total collapse in Volatility *** Yet to come *** 15 days to few months
We are currently in Phase IIA and IIB. It is a period of high Volatility. This is a period where there are cycles of sell off and minor fight back from bulls. This also can get nasty if it leads to panic sell off, due to heavy mutual funds redemption. This cycle can repeat till bulls get defeated comprehensively.
This can then be followed by period of inactivity Where bulls and bears go in hibernation. This is the period, when you may see some smart sectoral moves beginning to appear. These sectoral moves may then provide leadership to new bull run. Its not necessary that this period will be followed by bull run only. There can be bear run also, after Phase III. It depends on what the next trigger will be.
It can also happen that we directly move from Phase II A and B to Bull Run, if fundamental triggers for global equity market turn favorable.
We will see a next move when Valuation becomes attractive Never buy this argument.
Valuations are never a trigger. They can be the reason, but not a trigger. This time also, when markets have plunged, the trigger has not been valuation. The trigger was US Fed policy on interest rates, threat of economic slow down in US and its impact on World economy, and metal melt down.
I saw some comments on TV that markets are looking attractive on the back that valuations have eroded by 15-20%. Please beware of these comments. Value buyers may want to see Indian markets even more lower from current levels, as Sensex PE is still at 19.42. Never buy the argument that markets will go up because Valuations have become attractive.
What the next trigger will be?
Lot of commentators has made comment that stability in financial markets can be the trigger. To me that appears unlikely. The news that Global Cues are positive, and Dow Jones has closed in positive will have very little impact on our market. But if US markets close in negative, it will have negative impact on our market. This is the irony we will have to live with in next few months. Thats what is called a bear grip.
The fall in our markets have started on May 11, after Feds policy announcement on Interest rates, and I guess the next trigger will also come from Feds decision only. Till that time, we may continue in Phase II and III.
We should now look at US and Asia for fundamental news trigger and not day to day closing of US or Asian indices. The positive trigger can be threat of inflation waning, or US economy strengthening or Global demand picking up for consumer goods, or Iran is ready to abandon its nuclear program.
Lets look at the inflation which has been the driver of Fed policy decision
I have never been ardent fan of the way Central banks monitor and manage inflation. Government says inflation is in control but prices are climbing persistently faster than officially announced rates of inflation.
Just see the way, oil prices and commodity prices have risen in last couple of years, but surprisingly inflation around the world has pretty much been kept under control, as per Central Bank estimates. Its beyond my comprehension. In India, Government has not passed on the cost of oil to consumer, and is now trying to put in price control on commodity prices. Similarly, Corporates, in other countries, have been unable to pass on increased energy prices to consumers on back of stiff competition, and low economic growth in their
countries, and have instead accepted reduced margins.
I would say this is postponing problem. The impact of oil price rise will eventually bite all economies across the world. The worry is that inflation shock can be sudden, and sharp. The expected rate of inflation in US is now at the very top of the band with which the Federal Reserve is comfortable. After the release of recent inflation numbers, it appears Feds aggressive stance on inflation may continue, and it would be interesting to analyze its impact on the world economy, and equity markets in general. Irans behavior on nuclear program can only worsen the situation by spiraling up the oil prices. So, a caution is needed, as Indias low inflation numbers are also artificially manufactured, and can create a sudden shock later.
cheers,
nkpanjiyar
22 May 2006 !!!
continued from previous post...
Where this all leads to?
Predicting market is always fraught with risk. My objective is not to predict but to give indications of possible direction, and make you aware of the reason. Please note this is not based on any technical analysis. I can be terribly wrong also.
Phase *** Description *** Current Status *** Duration
I *** Sell Off Its instant, gives no time to react lot of people think its minor correction *** Complete *** 2-3 sessions(May 11-12-15)
IIA *** Fight back from bulls Bears defeat bulls comprehensively *** In progress *** 1 session to 1 month
IIB *** Panic Sell off *** In progress *** 1 session to 1 month
III *** Lack of Buying and Selling There is total collapse in Volatility *** Yet to come *** 15 days to few months
We are currently in Phase IIA and IIB. It is a period of high Volatility. This is a period where there are cycles of sell off and minor fight back from bulls. This also can get nasty if it leads to panic sell off, due to heavy mutual funds redemption. This cycle can repeat till bulls get defeated comprehensively.
This can then be followed by period of inactivity Where bulls and bears go in hibernation. This is the period, when you may see some smart sectoral moves beginning to appear. These sectoral moves may then provide leadership to new bull run. Its not necessary that this period will be followed by bull run only. There can be bear run also, after Phase III. It depends on what the next trigger will be.
It can also happen that we directly move from Phase II A and B to Bull Run, if fundamental triggers for global equity market turn favorable.
We will see a next move when Valuation becomes attractive Never buy this argument.
Valuations are never a trigger. They can be the reason, but not a trigger. This time also, when markets have plunged, the trigger has not been valuation. The trigger was US Fed policy on interest rates, threat of economic slow down in US and its impact on World economy, and metal melt down.
I saw some comments on TV that markets are looking attractive on the back that valuations have eroded by 15-20%. Please beware of these comments. Value buyers may want to see Indian markets even more lower from current levels, as Sensex PE is still at 19.42. Never buy the argument that markets will go up because Valuations have become attractive.
What the next trigger will be?
Lot of commentators has made comment that stability in financial markets can be the trigger. To me that appears unlikely. The news that Global Cues are positive, and Dow Jones has closed in positive will have very little impact on our market. But if US markets close in negative, it will have negative impact on our market. This is the irony we will have to live with in next few months. Thats what is called a bear grip.
The fall in our markets have started on May 11, after Feds policy announcement on Interest rates, and I guess the next trigger will also come from Feds decision only. Till that time, we may continue in Phase II and III.
We should now look at US and Asia for fundamental news trigger and not day to day closing of US or Asian indices. The positive trigger can be threat of inflation waning, or US economy strengthening or Global demand picking up for consumer goods, or Iran is ready to abandon its nuclear program.
Lets look at the inflation which has been the driver of Fed policy decision
I have never been ardent fan of the way Central banks monitor and manage inflation. Government says inflation is in control but prices are climbing persistently faster than officially announced rates of inflation.
Just see the way, oil prices and commodity prices have risen in last couple of years, but surprisingly inflation around the world has pretty much been kept under control, as per Central Bank estimates. Its beyond my comprehension. In India, Government has not passed on the cost of oil to consumer, and is now trying to put in price control on commodity prices. Similarly, Corporates, in other countries, have been unable to pass on increased energy prices to consumers on back of stiff competition, and low economic growth in their
countries, and have instead accepted reduced margins.
I would say this is postponing problem. The impact of oil price rise will eventually bite all economies across the world. The worry is that inflation shock can be sudden, and sharp. The expected rate of inflation in US is now at the very top of the band with which the Federal Reserve is comfortable. After the release of recent inflation numbers, it appears Feds aggressive stance on inflation may continue, and it would be interesting to analyze its impact on the world economy, and equity markets in general. Irans behavior on nuclear program can only worsen the situation by spiraling up the oil prices. So, a caution is needed, as Indias low inflation numbers are also artificially manufactured, and can create a sudden shock later.
cheers,
nkpanjiyar
23 May 2006 !!!
23 May 2006 !!!
There will be plenty of problems in the future, but there will also be lots of opportunities.
My yesterdays post began with quote - "When markets go up, there are no resistances; when markets go down, there are no supports. I never expected that market will embrace my message so seriously. Anyway, this is not a matter of joke. The market is in serious bear grip.
Amidst all this carnage, its interesting to listen to market experts This is a correction, Valuations have become attractive; Indian economy is strong and long term investor should buy.
This is absurd that people are still calling this a correction. If this is a correction, then what is a crash? Remember, in correction, one set of investors think they have made lot of money and book profits, and other set of investor, buy shares. Nobody dumps shares with nobody to buy. If this is a correction, then why FIIs are not buying?
Valuations have become attractive, and so people should buy shares. I just dont understand this logic. Did markets fell because Valuations were expensive? In markets, robots do not buy shares; its people with lot of emotions who buy and sell shares. When markets go up, they buy in hurry, because they have a fear of getting left out. When markets fall, they do not buy because they know that tomorrow they may get it cheaper. Thats why when markets go up, they continue going up and when markets go down, they continue going down. Also, Valuation is a relative term Sensex is valued at 16-17 times estimated earnings, more than the 12.9 times for the MSCI Emerging Markets index. So, its not mouth watering, as some people may want you to believe.
Indian economy is strong. I am not disputing this fact, but remember markets are about future, and perception of that future. The way Government of the day is running the business of the country, this perception may disappear soon. There have been no substantial reforms in last 6 months. I am seeing lot of dark clouds.
Please remember that all the market experts who are giving you advice to buy have a vested interest but remember they dont call the shots; its the FIIs who determine the direction. And they are saying with their action. Look at their daily sell figures. I also want market to go up, but remember markets do not reward emotions. Never fight with the trend. The same experts have been advising buy through the entire fall in last one week. When markets go down, it can go anywhere.
Is it good time to buy?
I am no expert. But logic says the time to buy has not yet come. Let me explain this. I know lot of people are puzzled on what has changed in last 10 days, that market is falling as if there is no tomorrow.
There has been a fundamental shift in the liquidity scenario worldwide, and Indian markets are witnessing that shift. Liquidity situation is worsening on back of inflation threat, and it will be a while when global liquidity situation improves.
I sometimes get very confused when experts say its a Liquidity driven market. Markets are always driven by Liquidity. Attractive Valuation only intensify the speed of upmove. In layman terms, liquidity implies market needs strong flow of money to go up.
On the argument of Valuation versus liquidity, its like saying I find this stuff very attractively priced but I don't have money to buy. No matter how attractive or worse the Valuations are - If liquidity dries out, market will not go up. Investors should not buy in hurry till we get clear fundamental signals that liquidity situation is improving. It doesn't matter that you have money to buy, what matters is whether of flow of money is good enough to take the market up.
In short term, markets may bounce back, and this should be used as an opportunity to exit from poor quality stocks, or stocks where you are making huge losses. I see that market may drift further, and will give ample buying opportunity at lower price. If you fear, that you will again be left out, which is not true, you can buy shares in small quantities. Remember, its better to be safe than sorry - Exactly.
I am sure, you will see less of messages like X stock is looking explosive, and may zoom to Rs. yyy, and after that sky is the limit. I hope this market correction would have taught what a limit is.
Remember, Reliance Petroleum was attractively priced at 86 few days back, and experts were pushing you to buy. If you would have bought even at 85, you would have been sitting at a substantial loss today. In bear market, waiting and buying in small doses are very rewarding strategies.
cheers,
nkpanjiyar
NB - The post is the outcome of lots of discussion happened with my like-minded friends.
23 May 2006 !!!
There will be plenty of problems in the future, but there will also be lots of opportunities.
My yesterdays post began with quote - "When markets go up, there are no resistances; when markets go down, there are no supports. I never expected that market will embrace my message so seriously. Anyway, this is not a matter of joke. The market is in serious bear grip.
Amidst all this carnage, its interesting to listen to market experts This is a correction, Valuations have become attractive; Indian economy is strong and long term investor should buy.
This is absurd that people are still calling this a correction. If this is a correction, then what is a crash? Remember, in correction, one set of investors think they have made lot of money and book profits, and other set of investor, buy shares. Nobody dumps shares with nobody to buy. If this is a correction, then why FIIs are not buying?
Valuations have become attractive, and so people should buy shares. I just dont understand this logic. Did markets fell because Valuations were expensive? In markets, robots do not buy shares; its people with lot of emotions who buy and sell shares. When markets go up, they buy in hurry, because they have a fear of getting left out. When markets fall, they do not buy because they know that tomorrow they may get it cheaper. Thats why when markets go up, they continue going up and when markets go down, they continue going down. Also, Valuation is a relative term Sensex is valued at 16-17 times estimated earnings, more than the 12.9 times for the MSCI Emerging Markets index. So, its not mouth watering, as some people may want you to believe.
Indian economy is strong. I am not disputing this fact, but remember markets are about future, and perception of that future. The way Government of the day is running the business of the country, this perception may disappear soon. There have been no substantial reforms in last 6 months. I am seeing lot of dark clouds.
Please remember that all the market experts who are giving you advice to buy have a vested interest but remember they dont call the shots; its the FIIs who determine the direction. And they are saying with their action. Look at their daily sell figures. I also want market to go up, but remember markets do not reward emotions. Never fight with the trend. The same experts have been advising buy through the entire fall in last one week. When markets go down, it can go anywhere.
Is it good time to buy?
I am no expert. But logic says the time to buy has not yet come. Let me explain this. I know lot of people are puzzled on what has changed in last 10 days, that market is falling as if there is no tomorrow.
There has been a fundamental shift in the liquidity scenario worldwide, and Indian markets are witnessing that shift. Liquidity situation is worsening on back of inflation threat, and it will be a while when global liquidity situation improves.
I sometimes get very confused when experts say its a Liquidity driven market. Markets are always driven by Liquidity. Attractive Valuation only intensify the speed of upmove. In layman terms, liquidity implies market needs strong flow of money to go up.
On the argument of Valuation versus liquidity, its like saying I find this stuff very attractively priced but I don't have money to buy. No matter how attractive or worse the Valuations are - If liquidity dries out, market will not go up. Investors should not buy in hurry till we get clear fundamental signals that liquidity situation is improving. It doesn't matter that you have money to buy, what matters is whether of flow of money is good enough to take the market up.
In short term, markets may bounce back, and this should be used as an opportunity to exit from poor quality stocks, or stocks where you are making huge losses. I see that market may drift further, and will give ample buying opportunity at lower price. If you fear, that you will again be left out, which is not true, you can buy shares in small quantities. Remember, its better to be safe than sorry - Exactly.
I am sure, you will see less of messages like X stock is looking explosive, and may zoom to Rs. yyy, and after that sky is the limit. I hope this market correction would have taught what a limit is.
Remember, Reliance Petroleum was attractively priced at 86 few days back, and experts were pushing you to buy. If you would have bought even at 85, you would have been sitting at a substantial loss today. In bear market, waiting and buying in small doses are very rewarding strategies.
cheers,
nkpanjiyar
NB - The post is the outcome of lots of discussion happened with my like-minded friends.
24 May 2006 !!!
24 May 2006 !!!
"A lot of people understand the market sell-off that occurred last week may have deeper legs and we may see a longer correction" (John Person)
It was a great day for bulls. Markets bounced back sharply, and closed at the high end of the trading range. After many days, newspaper will post a positive headline on the market Bulls beat bears by 341 points. Unfortunately, that will not be the case with the cricket Tendulkar pulls out from West Indies tour; and India gets second successive defeat from West Indies. But I am still very bullish on Indian cricket team, and I think this is a minor correction, and Indian team will come roaring back to defeat the West Indies team. Is that the case with the equity market as well?
Was this a bounce back or a signal that correction is over?
Well, if you read the quote above, it fairly sums up my understanding of the market too. After such a steep correction, a strong pull back was expected. But even after this strong bounce back, I am still bearish on Indian markets. Please read this news in all major newspaper - Deccan Air IPO refuses to take off. Remember in bull market, even a bad company gets fully subscribed multiple times, at any valuation.
I know lots of people are very relieved after yesterday rally, and recommendations have again started emerging. If market rallies again today, you will see a poster Happy days are back again. Anyway, I am still bearish, and think every rally should be sold. Interestingly, FIIs were net sellers yesterday.
But what if I am wrong, and market resumes its bull run? I may miss an opportunity of picking a stock in such a fantastic correction or sorry, crash.
I prefer to be wrong than sorry. Anyway, nobody knows what market will do, and hence investing in market at regular intervals is the best strategy. But dont get greedy of just putting everything in the market after this crash for spectacular returns. There is a theory called "Bull Trap", and you may know this term only after it hits you badly.
Please, note, I am not saying Dont invest. I am just saying dont go overboard. I guess the best way to describe action in next few days would be Recovery.
Recent experience can be dangerous in financial markets. I repeat this statement for new entrant.
In bull markets, you tend to ignore correction, and sit on your position, especially leveraged position, assuming market will bounce back, and you will be ok. Why we saw such a steep correction or crash in last 5-8 trading session is because of denial from short term traders that market can crash. They thought eventually market will bounce back, and they will be ok. The good news is that market has bounced back but the bad news is only after making them bankrupt. This I am talking of people who have been in the market.
Now, lets talk of people who completely missed out the last Bull Run. They saw, how market rallies once it starts running. Hence, they may like to board on the bus immediately with whatever they have. This is the money waiting on the sidelines, we have been hearing since last few months.
Generally, when markets crash the way it has done in last 5-8 trading sessions, it creates lot of nervous investors. These are the people who didnt got an opportunity to exit from the market in this crash, and they will use every rise to de-board this Bull Run bus. Hence, I fear we may again see a strong downslide, purely on technical terms, which can get accelerated by bad global factors. This is not to scare you, but to make you more watchful in the way you should be investing. Dont be greedy and you will be fine. It may also happen, that market may have a run away rally from here, and I may prove out to be wrong, but thats ok. My objective is not to be right but to make sure you do not get trapped in this market. This is called a "Bull Trap", which gets created by new and stubborn bulls who venture out after a strong crash assuming previous trend will resume immediately.
cheers,
nkpanjiyar
To be continued...
24 May 2006 !!!
"A lot of people understand the market sell-off that occurred last week may have deeper legs and we may see a longer correction" (John Person)
It was a great day for bulls. Markets bounced back sharply, and closed at the high end of the trading range. After many days, newspaper will post a positive headline on the market Bulls beat bears by 341 points. Unfortunately, that will not be the case with the cricket Tendulkar pulls out from West Indies tour; and India gets second successive defeat from West Indies. But I am still very bullish on Indian cricket team, and I think this is a minor correction, and Indian team will come roaring back to defeat the West Indies team. Is that the case with the equity market as well?
Was this a bounce back or a signal that correction is over?
Well, if you read the quote above, it fairly sums up my understanding of the market too. After such a steep correction, a strong pull back was expected. But even after this strong bounce back, I am still bearish on Indian markets. Please read this news in all major newspaper - Deccan Air IPO refuses to take off. Remember in bull market, even a bad company gets fully subscribed multiple times, at any valuation.
I know lots of people are very relieved after yesterday rally, and recommendations have again started emerging. If market rallies again today, you will see a poster Happy days are back again. Anyway, I am still bearish, and think every rally should be sold. Interestingly, FIIs were net sellers yesterday.
But what if I am wrong, and market resumes its bull run? I may miss an opportunity of picking a stock in such a fantastic correction or sorry, crash.
I prefer to be wrong than sorry. Anyway, nobody knows what market will do, and hence investing in market at regular intervals is the best strategy. But dont get greedy of just putting everything in the market after this crash for spectacular returns. There is a theory called "Bull Trap", and you may know this term only after it hits you badly.
Please, note, I am not saying Dont invest. I am just saying dont go overboard. I guess the best way to describe action in next few days would be Recovery.
Recent experience can be dangerous in financial markets. I repeat this statement for new entrant.
In bull markets, you tend to ignore correction, and sit on your position, especially leveraged position, assuming market will bounce back, and you will be ok. Why we saw such a steep correction or crash in last 5-8 trading session is because of denial from short term traders that market can crash. They thought eventually market will bounce back, and they will be ok. The good news is that market has bounced back but the bad news is only after making them bankrupt. This I am talking of people who have been in the market.
Now, lets talk of people who completely missed out the last Bull Run. They saw, how market rallies once it starts running. Hence, they may like to board on the bus immediately with whatever they have. This is the money waiting on the sidelines, we have been hearing since last few months.
Generally, when markets crash the way it has done in last 5-8 trading sessions, it creates lot of nervous investors. These are the people who didnt got an opportunity to exit from the market in this crash, and they will use every rise to de-board this Bull Run bus. Hence, I fear we may again see a strong downslide, purely on technical terms, which can get accelerated by bad global factors. This is not to scare you, but to make you more watchful in the way you should be investing. Dont be greedy and you will be fine. It may also happen, that market may have a run away rally from here, and I may prove out to be wrong, but thats ok. My objective is not to be right but to make sure you do not get trapped in this market. This is called a "Bull Trap", which gets created by new and stubborn bulls who venture out after a strong crash assuming previous trend will resume immediately.
cheers,
nkpanjiyar
To be continued...
continued from previous post...
24 May 2006 !!!
continued from previous post...
Margin pain is out of the system. Markets should run. What pain are we talking about?
Is pain the outcome of the problem, or pain, itself, is the problem? I got confused after listening to some market experts yesterday, that margin pain is out of system, so there is nothing to worry, and market may see upside. Lets first understand what margin pain is. Its buying shares on loan. When market slides, broker/lender demands more money to maintain your position. Exchange has a real time risk monitoring system, and if broker fails to provide additional money, they force the broker to liquidate the position. Since, it takes time for broker to collect money from clients; they sell other stocks in the portfolio to make up for the margin money. In a downward market, this kind of forced selling accelerates the selling process, and creates a strong panic in the market. Its complex to understand, if you are not aware of this. Lets come back to the question of is pain the problem or pain outcome of the problem. Its interesting and lets understands this.
Let me first recap the events of last 10 days -
US Fed decides to increase the interest rates, and keep the option open for future interest rate rise. It says the future rate rise will depend on data. (May 10, 2006)
Equity markets worldwide get nervous, and emerging markets and commodities get the first bear punch. Indian markets too get the first taste of decent correction after a long time. (May 11, May 12, May 15)
Indian equity market then on back of India story rallies handsomely, after a steep correction, and close up by 300 points (May 16, May 17)
CBDT (Central Board of Direct Taxes) known for perfect timing comes up with draft circular on taxation. This creates a nervous sentiment in the market.
The inflation data comes out in US and warns of inflation risk. Since, Fed said that it will raise rates based on data, the nervousness of the market rises. Global melt down begins. Indian equity market gets the hardest knock, and downslide begins.
The traders here on back of recent experience chose to ignore the global meltdown initially. But when market started sliding faster, the pain started worsening. Suddenly, pain became so louder and shriller, that Finance Minister has to come up with life saving drugs to save the market (May 18, May 19, May 22)
After taking a pain killer, now market is feeling better and has rallied by 300+ points. Now, it has to be seen, how long the market can run on pain killers.
But the issue is whether pain was the problem or something else. The problem A view is emerging that Global equity market especially emerging market is a risky asset class in current economic context. As pointed out by AMITBE many times, now Smart money is moving out of emerging markets to safer investment avenues like Treasury bonds. This uncertainty may prevail till Fed June 29 meeting.
So, the problem still persists, and hence logic says market will be nervous till clarity emerges in global economic context. Markets will not run only because pain is out of system. Do not use recent experience and aggressively invest, else you may again need strong pain medications.
What should I do?
Invest is small doses in good quality scrips. Use this rally, to get out of cooked stories based on real estate and other vague ideas. Monitor the global trends to look for fundamental trigger. Eliminate the feeling of left out, and have a moderate expectation with the market.
Global equity market today seems on a recovery path, which is good news, and it just needs some doses of positive fundamental trigger to rally.
Outlook for the day:
I love the phrase I am cautiously optimistic. You would have heard this phrase many times before. Do you know what it means I dont know.
This is the irony of being an expert you cannot say I dont know. Then how can you be expert if you dont know. So, this is a good phrase to hide behind, if you have no idea whats going on in the market.
Well, I will not say, I am cautiously optimistic. I am bearish over short term; but feel that yesterday momentum may carry on the back of recovery worldwide in equity market. But let me also caution you, selling may emerge anytime, and it can be again fast and ferocious.
Factors on which market will vote today:
F&O Expiry roll overs
FII Net Sellers yesterday
Petrol, diesel price hike in 3 days
Financial Sector reforms must for 8% GDP growth P Chidambaram. I agree Sir. Please initiate the process.
Reservation is on A bill will come soon in parliament Every second person that will come out of our prestigious institute will be on back of reserved seats Merit doesnt matter A great economic logic coming from none other than our Finance Minister and Prime Minister.
Emerging market recovery worldwide. I just caution you to be vigilant and be out with umbrella, as dark clouds still exist, and heavy downpour cannot be ruled out anytime. Orderly correction are things of past and all corrections in this market will be wild and dangerous.
cheers,
nkpanjiyar
NB - With inputs from like-minded friends.
24 May 2006 !!!
continued from previous post...
Margin pain is out of the system. Markets should run. What pain are we talking about?
Is pain the outcome of the problem, or pain, itself, is the problem? I got confused after listening to some market experts yesterday, that margin pain is out of system, so there is nothing to worry, and market may see upside. Lets first understand what margin pain is. Its buying shares on loan. When market slides, broker/lender demands more money to maintain your position. Exchange has a real time risk monitoring system, and if broker fails to provide additional money, they force the broker to liquidate the position. Since, it takes time for broker to collect money from clients; they sell other stocks in the portfolio to make up for the margin money. In a downward market, this kind of forced selling accelerates the selling process, and creates a strong panic in the market. Its complex to understand, if you are not aware of this. Lets come back to the question of is pain the problem or pain outcome of the problem. Its interesting and lets understands this.
Let me first recap the events of last 10 days -
US Fed decides to increase the interest rates, and keep the option open for future interest rate rise. It says the future rate rise will depend on data. (May 10, 2006)
Equity markets worldwide get nervous, and emerging markets and commodities get the first bear punch. Indian markets too get the first taste of decent correction after a long time. (May 11, May 12, May 15)
Indian equity market then on back of India story rallies handsomely, after a steep correction, and close up by 300 points (May 16, May 17)
CBDT (Central Board of Direct Taxes) known for perfect timing comes up with draft circular on taxation. This creates a nervous sentiment in the market.
The inflation data comes out in US and warns of inflation risk. Since, Fed said that it will raise rates based on data, the nervousness of the market rises. Global melt down begins. Indian equity market gets the hardest knock, and downslide begins.
The traders here on back of recent experience chose to ignore the global meltdown initially. But when market started sliding faster, the pain started worsening. Suddenly, pain became so louder and shriller, that Finance Minister has to come up with life saving drugs to save the market (May 18, May 19, May 22)
After taking a pain killer, now market is feeling better and has rallied by 300+ points. Now, it has to be seen, how long the market can run on pain killers.
But the issue is whether pain was the problem or something else. The problem A view is emerging that Global equity market especially emerging market is a risky asset class in current economic context. As pointed out by AMITBE many times, now Smart money is moving out of emerging markets to safer investment avenues like Treasury bonds. This uncertainty may prevail till Fed June 29 meeting.
So, the problem still persists, and hence logic says market will be nervous till clarity emerges in global economic context. Markets will not run only because pain is out of system. Do not use recent experience and aggressively invest, else you may again need strong pain medications.
What should I do?
Invest is small doses in good quality scrips. Use this rally, to get out of cooked stories based on real estate and other vague ideas. Monitor the global trends to look for fundamental trigger. Eliminate the feeling of left out, and have a moderate expectation with the market.
Global equity market today seems on a recovery path, which is good news, and it just needs some doses of positive fundamental trigger to rally.
Outlook for the day:
I love the phrase I am cautiously optimistic. You would have heard this phrase many times before. Do you know what it means I dont know.
This is the irony of being an expert you cannot say I dont know. Then how can you be expert if you dont know. So, this is a good phrase to hide behind, if you have no idea whats going on in the market.
Well, I will not say, I am cautiously optimistic. I am bearish over short term; but feel that yesterday momentum may carry on the back of recovery worldwide in equity market. But let me also caution you, selling may emerge anytime, and it can be again fast and ferocious.
Factors on which market will vote today:
F&O Expiry roll overs
FII Net Sellers yesterday
Petrol, diesel price hike in 3 days
Financial Sector reforms must for 8% GDP growth P Chidambaram. I agree Sir. Please initiate the process.
Reservation is on A bill will come soon in parliament Every second person that will come out of our prestigious institute will be on back of reserved seats Merit doesnt matter A great economic logic coming from none other than our Finance Minister and Prime Minister.
Emerging market recovery worldwide. I just caution you to be vigilant and be out with umbrella, as dark clouds still exist, and heavy downpour cannot be ruled out anytime. Orderly correction are things of past and all corrections in this market will be wild and dangerous.
cheers,
nkpanjiyar
NB - With inputs from like-minded friends.
Links ...
Market warns - 18 May 2006
http://www.traderji.com/equities/6659-market-warns-18-may-2006-a.html
19 May 2006 !!!
http://www.traderji.com/equities/6665-19-may-2006-a.html
22 May 2006 !!!
http://www.traderji.com/equities/6704-22-may-2006-a.html
23 May 2006 !!!
http://www.traderji.com/equities/6725-23-may-2006-a.html
24 May 2006 !!!
http://www.traderji.com/equities/6739-24-may-2006-a.html
Thanks.
Market warns - 18 May 2006
http://www.traderji.com/equities/6659-market-warns-18-may-2006-a.html
19 May 2006 !!!
http://www.traderji.com/equities/6665-19-may-2006-a.html
22 May 2006 !!!
http://www.traderji.com/equities/6704-22-may-2006-a.html
23 May 2006 !!!
http://www.traderji.com/equities/6725-23-may-2006-a.html
24 May 2006 !!!
http://www.traderji.com/equities/6739-24-may-2006-a.html
Thanks.
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