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Source : CNBC-TV18
The markets have seen another dose of bad news. The backdrop for the markets` opening looks sticky. We are on the backfoot straightaway. This week may be important as a decider for the near-term (direction) for the markets. The global markets may either bottom out and then bounce back or, the October levels may break down. It could go either ways, but by Friday, the markets should get some answers (about the course of the markets).
The broader market didn’t seem to go anywhere in trade yesterday?
No, it did not look good. You did not come away yesterday feeling good about the market despite the Nifty getting flat, so that’s it from a local perspective.
Last week we were talking about how this week is very important in being probably a decider for the near-term trend for the market which has been weak but it has not broken down completely below October lows, but I do think that over the next four days of trading for this week you will find a direction.
One of two things will happen either will the global markets will go close to the lows and then bounce back which looks like the lower probability event right now or the October lows will break and we will start another big leg down for the market but by Friday you will get an answer.
The market will not be in a small range or a tight range for much longer; there is just too much happening around us, so either we break down which looks fairly likely. If it does not then you will probably have a counter trend rally from the October lows. Surprising things happen in the market, so don’t rule it out. But one of these two possibilities and the way it is going it is probably 75% in favour of break down and 25% in favour of a pullback from the October lows but by this weekend, you will know.
On the Finance Ministers comments:
One is encouraged, to hear the voices of confidence from the Finance Minister, I hope he is right that maybe we will bounce back next year and this year too growth led by agriculture not be too bad after all but just a couple of small observations on the data that he was pointing out; one of course is that the lowest estimate for this year’s gross domestic product (GDP) is 7% that may have been true a month back but the lowest estimate now is 5.8% for this year, Citigroup too is at 6.8% and there are whole host of investment banks – who are at 5.8%, 6.3% for this year leave alone next year where the predictions are far more southward.
On the issue of investment demand and that Credit Manager’s Index (CMI) article, I will not go into the details of that because there is a lot of evidence to suggest that investment is actually slowing down much more sharply and on CMI this is the think tank which till a few weeks back had a 9.5% GDP growth target for this year and very obstinately refuse to lower it sighting that they had far larger teams on the ground than other investment banks. Just a few weeks back that they had a 9.5% GDP target.
As the old saying goes the proof of the pudding is in the eating. We can continue talking about what it will be but it will be, regardless of what anybody says Morgan Stanley or the Finance Minister it will be what it will be, so the proof of the pudding is in the eating and while the Sensex of course is not so completely important and reflective, I think it is probably suggesting that things will not turn out as well but we will see it is just a matter of a few months and quarters, we will see what growth is.
The global cues haven’t been very good and it is the same situation that we have been talking about for our own market, just grinding lower and lower everyday?
Yes and there are some things which are happening which are disturbing which is that the commodity markets and the equity markets for sometime now are moving in the same direction. That typically happens when the world is extremely worried about growth.
At other points - just a few months back they had an inverse correlation - the more commodities fell, the more equities would rejoice. But in the last few weeks you go back and map the correlation; whenever we have had base metal sell offs or crude sell offs, equity markets have also plunged with it. This is typically the sign of things entering some kind of a negative spiral globally and that correlation is quite disturbing. Of course the way Alcoa tanked 11% cannot be very comforting on that score.
But more importantly the point that we were mentioning a bit earlier in the show that the S&P is probably 15-20 points away from its October lows that I think is the most important index in the world, like it or not, decoupling fan you are or not, the S&P is the mother of all indices. If the S&P goes to its October low, which is 835 or 840 and bounces back from their creating some illusion of a double bottom for the moment, then I think you have got a chance of a nice countertrend rally building up.
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It’s Monday morning but the weekend was not as eventful as some would have expected. The G20 meeting happened, nothing concrete; some assurance and promises and future commitments have been spoken about but nothing really concrete has happened for the financial markets over the weekend.
So as a result Asia is extremely flat this morning not up not down but the US market closed with severe cuts on Friday. So let`s see what we make of it but it’s not a huge start for the market this morning either way, because events probably did not pan out as may have been expected.
We will have to do some of our own work but the backdrop isn’t great?
No it isn’t and I think you would step into this week with some degree of trepidation. I know Asia has not collapsing or anything like that but you are just getting a lingering bad feeling at the pit of your stomach again because any major boosts have not happened from the world of financial markets. Nowadays if you are flat then you are down because the market trend is that way so maybe the morning won’t be too bad but you worry about what happens over the next few days because we are dangerously close to the last few support levels here for the Nifty. So fingers crossed, hopefully we won’t get cut too badly but there is more hope than conviction in that.
Asian Indices:
Asia is not doing too badly it has actually recovered from the lows not that the lows were very substantial today but most of them are in the green quarter of a percent (0.25%), half a percent, 1% but generally green which is not a bad place to start Monday morning.
There is no real positive takeaway from the global situation or market performance?
There is no redemption from the US in terms of data points otherwise redemptions are plenty but generally it’s bad; the retail data point was very bad. I think the market is very worried about the retail data point more than the industrial data because increasingly the worry is that the consumer numbers will fall off very dramatically in the US. I am not surprised that the US markets sold off on Friday when the data came in even before the G-20 meeting happened.
Now, there is a lot of attention on what will happen with General Motors as well so nobody knows what the bailout package there would be and what the contours of that and that assumes some importance globally. So the next few days that for the US market might turn out to be a bit of a trigger just in the near-term but the data points are terrible, across the world Japan is the latest to join the recession club. If you are looking for some quantum of solace from the US data points or global data points – there aren’t any; there is no question about that.
We keep asking the same question - whether the Dow will just manage to survive from the brink of 8,000 and still manage to linger on there without violating that low significantly or is it headed sharply down after breaking that 8,000 level? That we don’t know; we will find out this week I am sure. But there is no encouragement from the economic data points at all.
On G-20 meeting:
People are a bit confused about what to expect from governments in terms of this stimulus plans and packages right now. There is just too many of these going around in China and in the US and frankly that is created in air of confusion rather than resolving matters but people were hoping against hope that something might happen because delays are so expensive now that it is not good enough to say we meet again in April because three months in this market or four months in this market is like a decade. You want to do what you have to do or can do right away and not delay saying we will debate toss it over in our heads and comeback many months later and try and do something.
I am still hoping that some countries might actually go ahead and do something this week because if they do not, the market will be quite unhappy. It is already confused with the policy action because of the flip-flops, which has happened. The market needs a little bit of a crutch right now and constant crutches; the fact that you did not have any kind of a shrugging off actual action which is taken I don’t think it has concrete stimulus package or no tax cut or no interest rate cut, might frankly leave investors a bit disappointed about the G-20 Meeting statements of intent are fine but this market is much time for statements of intent. So it was a little bit of a disappointment out there, I think it could have delivered more for financial markets at least.
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Are we out of the woods? - I doubt it, we will need far more support from global markets to keep this market going above 3,000 and get back to 3,250. It won’t happen in a single day of course today is a Friday and there might be some hope leading up to the weekend events of G20 etc. So maybe the guys who open up longs or cover up shorts more importantly today do not reinitiate shorts before the weekend is out not knowing what will come through from the G20.
We could have a couple of good days which gets you back closer to 3,000. But the last two days sort of smacked up a bit of a breakdown. So we would need help from the global markets. I think we are still in 200-300 points kind of Nifty range which might have just drifted down somewhat and within that range, we will see volatility because the bears have tasted blood over the last couple of days.
The only other problem is with Wednesday are those selling figures or the wounds started opening up again?
The FII’s have sold quite a bit by their recent standards. The overall FII volumes have come down but to see a Rs 700 crore plus sell figure is not quite encouraging. But if one is tracking which side the momentum is blowing and that’s an important thing to track now; the give away is in terms of volumes.
The last two days when the market broke down, volumes on the first day jumped 25% and then the next day on that base was up another 25%. So you did get a big volume spurt in these kinds of volumes that we are talking about, a substantial volume spurt came in on the way down. We can see that the market momentum is absent on the way up, it almost seems like an empty jump up led by short covering but the moment a crack appears volumes pick up almost immediately, so there is more momentum on the way down every time downsides open up rather than on the way up and that’s typically on the sign of market where people want to trade downsides rather than upsides because they have more conviction than the down trade.
That’s a disturbing internal statistic, the put call ratio has adjusted downwards from 1.24 to 1.07 and that adjustment was quite inevitable but otherwise we are not getting any sense from the internals and we are pretty following global kind of cues but I still don’t think we have rediscovered momentum on the way up, we will have to probably get back to those 3300-3400 levels for momentum to come back on the long side. Till then we have to get resigned to these small shallow short covering bounces which are not backed by any significant terms of volumes.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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A lot has happened over the past two days. First there was the big sell-off in the United States but our markets were shut. Then there was the big rally in the US today. Thankfully — due to Guru Nanak Jayanti — we didn’t play during the bad global day but are now starting on a good day.
Back home, inflation is just not below 10%, it actually is below 9%. That might just be a trigger for a rally. Then there’s also the G20 over the weekend and there would some news from there too.
So there will be lots of news flow over next 48 hours. What is good is we are putting a rally here after two bad days in the markets.
Here is a verbatim transcript of Udayan Mukherjee's comments on CNBC-TV18. Also watch the accompanying video.
We chose a good day to takeoff but almost every data point the market might track actually has some news against it this morning?
Yes it does and I think it might be an important session of trade as well. Yesterday look so scary across Asia after that plunge but thankfully we were not part of that.
Today we will bask in that sunshine for a bit for sure, inflation also included. Its tough to say what’s going on, the way the US fell to the October lows and bounced back; one could argue both ways sure some people would be talking about a double bottom out in the US, other people would be worried about the economic data and today we trade and then there is G20 over the weekend where there could be some news as well.
I suspect you will have lots of news flow over the next 48 hours for the stock market and you could say two way movements as well but at least it’s good that we are putting a bit of a rally here at least for starters after two bad days for the market.
Asian indices:
You would have expected Asia to rebound much more substantially given that Asia sold off yesterday and today the cues are huge from the US but sort of tepid; Hang Seng is still holding 3% higher, the Nikkei too but China is quiet, Korea is in the red, Taiwan is just about up half a percent not what you would expect to see after a 7% rally in the US market. So slightly mixed cues from Asia.
On the mood for global markets:
They have turned a bit volatile and I think in such times, we know that the economic data has been unequivocally bad but just in terms of mapping technicals and what happened yesterday, I don’t know whether its significant but the fact that S&P down and the Nasdaq went below their October lows, touched them and then rebounded 5%-6%. Some of the technical traders might be encouraged to see that kind of price action during the course of the day where you hit a significant bottom and then you rebound very meaningfully from the lows of the day.
In the past its happened in our market as well and we thought it might be a double bottom but we have been proved wrong after the event. I don’t know whether you can save that conviction but there is a small hope that the October bottom is not being violated significantly by the biggest market and you saw a recovery from there.
Having said that, while the S&P and Dow did go down to their October lows, most of the other global markets with the exception of China have not gone anywhere to their October lows yet. So I don’t know whether there is that leg pending across other global markets and that perhaps could be one of the reasons why Asia is a bit lukewarm compared to the kind of bounce that you have seen in the rest of the world.
It’s an interesting kind of a debate on whether we are going to the October lows, whether US did that and formed a kind of an intermediate double bottom once again and those technicals are interesting to map.
In terms of the data points, we have seen the jobless claims data has been very poor; Germany officially is now in a recession with two quarters of negative GDP growth, so none of the data points are suggesting anything great. However now there is G20 over the weekend and who is to say that we might get some kind of fillip from there which also puts the US markets or the Global markets higher in the near term, I think you will see volatility over the next couple of days but just not sure of whether we can say of with some degree of conviction that the October lows are the final lows they are holding.
That of course was a pretty real fear or a big fear for us when we shut shop on Wednesday?
It was but this morning you will get a bit further away from it which is good. We closed just around 2,850 on Nifty. We will certainly start above 2,900 maybe get closer to 2,950 kinds of levels as well. So it’s a bit of the global cheer, bit of inflation which will nudge us closer to probably 2,950.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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That’s the point, we were making yesterday morning that the market seemed a little overbought while positions in absolute terms were not large, the stock futures pileups and the Put-Call Ratio at 1.24 did look a little overstretched on the overbought side. Now that has corrected somewhat to 1.16 after yesterday’s fall and stock futures positions have come off but my feeling is that some more stock futures positions need to come down and if indeed this market does not bounce back today, you will see sub-1 Put-Call Ratios once again, which would probably take the edge of the overbought situation in the market.
This time I don’t think you should blame the global guys anyways trading volumes from the global desk have come off quite significantly. Now it is some of the domestic traders who were looking to play that pullback rally to a slightly larger extent have got probably caught on the wrong foot.
It still seems quite murky for the global situation as well; commodities are pinging quite crazily, the market seems a bit unsettled?
The sell off in commodities over the last couple of days - a day after that the Chinese news came in is just reflective of how fragile any kind of bet on a demand resurrection has become. You play for it for a day in some hope but two days which follow after that you give up all those gains and go back in many parts to lower than the levels pre rally. I don’t think anybody has any conviction in demand conditions improving any time soon across the world.
While we may not have seen in India and in other parts of Asia, I think the US is in complete confession mode. The number of profit warnings, which have come in from companies over the last 10 days from the large companies and forget the earnings they are disastrous but even the guidance, which is coming from large number of global big US companies leaves you extremely worried. So globally the turf is very bad no question about that.
But whether some of these near-term stimuli like what might come over the weekend, some rate cuts might again materialize again globally orchestrated, whether they can make things better technically in the near-term for the market before the bad news engulfs it, is another call. But that sequencing of events the frame work still looks very bad and there is no getting away from that globally.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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Global cues are not that great. Back at home, above 60-70 points the traders would be looking at a bounceback. We may live for another day. Today's an important day of trade, the IIP numbers should be good and help the markets.
A very important day of trading coming up, yesterday we had a sell off; today traders would be watching very closely what kind of levels the market takes support at.
Global cues are not great of course but it’s not a complete collapse across the global markets; the Dow was down and most of Asia is down in the red as well but it’s not a complete washout across Asia. Today of course in the middle of the trading day we have got the IIP (Index of Industrial Production) numbers which will also probably be a very important trigger of trade. Lots of things to look out for today as we got into trade not least because we had a capitulation like sell off yesterday.
We were poised at an extremely crucial level by the time we shut shop yesterday?
Yes, we did shut shop at a fairly crucial level and another 60-70 points from here and the traders would be looking extremely carefully about any kind of a bounce back. I don’t know whether that happens first thing in the morning, we may just about have a flat to weak kind of start but then as the closer we get to those 2,850-2,860 levels which are last week’s lows; I think traders will start looking at it extremely closely. We may go to those levels or close to those levels and try and bounce back into that trading range and then take it from there over the next couple of sessions, so that is possible.
I think yesterday’s closing has certainly raised the risks of another breakdown, so today is an important session of trade and I hope we don’t get negative surprises from the IIP (Index of Industrial Production), which might lead to that breakdown which people are fearing once again.
Asian Indices
It looked for a bit that Asia would probably get away without too much of a cut but with the passage of time this morning things are not looking great. The Hang Seng is now down nearly 2.5%, Japan is down 1.5%, China 1%, Korea 1%. So they have come off quite significantly since the start of the session, they were flat but not most markets are down.
The problem yesterday was that along with falling, we were showing no attempt on pulling back at all of those technical levels that we talked about?
It looked like capitulation yesterday which is not a great thing and it just hit the market quite suddenly. Yesterday morning if you had asked traders what are they playing for, they would have said okay a flat kind of day and eventually we are going to get back to 3,250 to 3,300. We didn’t go anywhere close to that 3,100-3,150 and then down to 2900. It was quite a stunning reversal yesterday and the way some of the largecap names came off was frankly quite alarming.
This morning is again a test for the market, we have been saying the market has broadly been in arrange of 2,850 to 3,250, that’s a 400-point range but today is the test of that whether we do go back to those kind of levels, last weeks low and whether we can hold those lows and try and get back into that range.
We will be volatile and there is no question about that, whether these levels will hold or the traders will loose heart once again and just play for 2,500 kinds of levels on the Nifty again is the mood point. It’s a tough call but I think by about 12:30 pm today you will get a sense, once the morning trade is done once the IIP numbers come in, we will get the answer to whether we are about to hold last weeks lows and still trade for a range longer or we are going to break down today and slide much more from there.
On internals:
Yesterday’s capitulation was not because of any kind of global selling or institutional selling. If we look at the cash data or the futures data, it doesn’t suggest that there is a huge amount of pressure, which came in from the institutional side. I think what happened yesterday was that domestic futures traders panicked; they threw in the towel.
They had been building up in the hope that the market is going eventually to 3,300-3,400 levels but the pace of the setback yesterday unnerved them and you saw 4 crore shares plus, of the stock futures go out yesterday. So the Suzlons and GVKs and IFCIs, which had been building up quite a bit of speculative future positions were tossed out yesterday, which is why the market came under quite a bit of a pressure.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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If one looks at the over market; while the positions are not very large on the Futures and Options (F&O) markets, any build up has been nothing but lackluster but the Put Call Ratio (PCR) is standing close to 1.23-1.25, stock futures are adding quite a bit of Open Interest (OI) for the last few days, the Nifty futures is at a 12 point premium. When you look at all of these, it seems that the market is probably mildly overbought. Not overbought in the context of what would have been called overbought 6 months back where overall the levels of positions were much higher. So now there is no great technical risk to the market, but even so I think you would want to think that the market is probably on the side of being mildly over bought rather than oversold with that kind of PCR.
Just to keep that at the back of your mind the assumption seems to be that there is not too much downside from hereon, that is what the internal seems to be suggesting.
What about the Nifty?
We will just to and fro a little bit nothing to suggest any dire things just for the near-term. The Nifty had a pullback and then after the recent decline, it is just about consolidating in a bit of a range. For the current, you would think that the Nifty should not slip below 2,900-3,000 kind of levels. Will it go easily above 3,300 that also seem a little unlikely unless you get some fresh burst of energy from the global markets, so we are broadly in that 300-400 kind of point range on the Nifty for the moment but that we say when we don’t know which way the Nifty is going? So just take 200-points on either sides and try and construct a bit of a range.
Truth is that the market is probably consolidating and that too on very thin volumes. It doesn’t look like it is ready for a massive dart up, it doesn’t look like it should break down dramatically from here. Something will have to happen in the next few days externally to nudge the Nifty out of this range because I think both the bulls and bears broadly know the extremities of what they are playing for at this point.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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The news in China couldn’t exactly lift the US markets. The US markets lifted for a bit but — though they did not exactly collapse — there was a lot of uncertainty after the late sell-off. Asia didn’t exactly collapse too but that indicates the global mood.
Today might be more of a flat session with flat cues. We saw a strong 10-day rally recently, and now you will see both up-sessions and down-sessions.
Our markets have done very well yesterday, we are trading well above 3,000 Nifty that is comforting, today might just be a little bit more of a give and take kind of day. Let’s see if we can come out with just about a flat session, with flat global cues.
It was quite cheerful for us till yesterday- will we be a bit sticky in the start?
Looks like a flattish kind of a session coming up; Asia is not exactly collapsing because of the late sell off in the US but it just indicates to you what the global mood is; that you make some gains and then the data overtakes you and then you don’t make much of it by the end of it all. So it is still grinding out down there, its not as powerful a global rally which is playing out as we saw just about 10 days back because that was a strong relief rally, now things after the good come back have become somewhat mixed out there so we are seeing both up-days and down-days.
Looks like a flattish day here as well, hopefully we will be able to erase the morning cut however little it is during the course of the day.
Asian Indices:
Asia is very quiet it is not down, so the cuts are very modest barring Japan which is down more than 1.5% but otherwise quarter of a percent down to about a percent down and that too volatile it is swinging around a little bit but tepid morning across Asia.
How does one gauge the global plain over the next few days?
It’s still okay; there is no sign of a massive sell off or anything which is coming. Globally people are trying to put in a year-end rally in to place and the consensus is wearing around to an October bottom which has been formed and maybe some constructive movements over the next few weeks before this year goes down. But after the initial rally which has been quite spectacular across markets, now the rallies are getting a little bit more laboured.
You are seeing the return of a touch of volatility which means you are getting a couple of good days and a bad day and a bit of a setback and then low volume kind of trades, so there is a certain quality of tepid, uncertain, laboured kind of moves up which you are seeing right now and despite the kind of regulatory and global action that we are seeing from the governments that is because the bad earnings news and the economic news refuses to die down.
Sometimes we get bad employment news like the macro numbers etc, and at other times we are getting very bad earnings news; what came through yesterday from AIG, Fanny Mae, the Goldman downgrade all of that is making very skittish about the kind of turf that you are playing in. So some of the feel good has come off a bit I imagine after a recent rally but still the market is a bit reluctant you can see to give up most of its gains posted in the last few weeks.
It almost like a cart trying to climb a hill, the easy part of the climb has done and now its just trudging along a bit, so sometimes it manages to go up and sometimes it slips and goes a bit more. We are still trying to climb and see how we come out over the next few days.
On internals:
The big internal is the volume they have just completely vanished and that is what makes you even more circumspect about taking any kind of directional view on the market because on these kind of volumes typically price movement don’t mean so much. The whole quantum of buy or sell has gone down so dramatically, it is not like large sell figures are coming or large buy figures are not coming the participation is gone down. Look at he FII overall action, the Domestic Institutional Investor (DII) action everything seems to be drifting down, so it is not a bad thing that generally volatility or excitement levels come down little bit that is only desirable, but the volumes have become very tepid and that is the key internal that you want to focus on.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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It is not easy to answer these questions because the bigger question is in these whole scheme of things over the last few weeks 10-15 days, did the market give you a relief rally and then it went back and then formed a higher bottom and started resuming its upper journey, can you say that with conviction. Because if you could, then you would play for gains on the Nifty, but you don’t know whether two days action is enough to tell you that the higher bottom was formed indeed and now you can trade with conviction back up to those levels of 3,300-3,400, if not beyond that.
But for the moment, I think traders will try and trade on the long side because they have seen what has happened a big 40% rally, then a 10-12% pull down and then the market has bounced back somewhat. So that formation should be enough for them to try and trade the long trade once. Now if it succeeds or not one doesn’t know but I think there will be a moment of uncertainty around that 3,050-3,100 levels, which we should get to this morning and then take it from there.
The street is divided on whether we are going to make it to 3,400 this time, or we slip back and trade in a narrower range say of 2,800-3,200 and consolidate for sometime.
We haven’t seen those big balloons of selling or covering and volumes have been quite tepid through last week?
That’s the interesting bit that despite volatility the participation is waning; not just futures and options (F&O) volumes on a daily basis but if we look at the Foreign Institutional Investor (FII) data and how much they trade everyday that is subsiding. So one doesn’t know how to read that, is it a sign that the market is finally entering that consolidation range and the inevitable is therefore happening which is the excitement and the volumes dropping off or is it that people don’t have the conviction to trade on either side exactly what I was saying just a minute back that they just confused on whether this market has resumed its pullback phase or is it just a couple of days of pop back and then the market goes down once again.
It is not easy although you can take a view but I think even people who are taking that view, are not taking that with great conviction. It is a very tentative kind of a trading step that you are putting forward and therefore volumes are bound to be low when you have high conviction in trending markets then volumes pick up because you know you are comfortably laying out your money behind that trade. But now both from the FII perspective and from a local perspective, conviction levels are waned considerably which is why you are seeing those very low- volume kinds of days. I suspect you might see a bit more of that unless the market gives you a clear sense of which way it is trending for the near-term.
The other thing is if you look at the options data that is quite interesting because while a lot of directional trades are not opening up, the boundaries have seen some trades which is people saying that – I am comfortable writing a 2,500-Put right now because while I may not know the next 200-points move on the Nifty, I don’t think in this move the Nifty breaks 2,500 in a hurry. On the way up, it could go up I may not have the conviction to trade that long with a lot of money but I think that for the traders 3,400 should not break very easily on the way up. There will be a lot of resistance there.
So even if I can’t take a Nifty futures long or a Nifty futures view, then I am happy to sell that 3,400 Call as well because that will prove to be a bit of a resistance. That’s a big band 2,500 and 3,400 is a 900-point band on this base but people are more comfortable playing the extremities of that range rather than taking a directional call at this point playing for the 200-300 point move on either side and that is quite interesting.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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Today is the start of an important week after what happened last week — we first had a pullback, then a pull-down and finally a short rally to settle around the 3,000 level.
In terms of global news, it’s not a bad morning and the Asian space looks good. What remains to be seen is whether we resume the rally after a good start. It’s an important trading session and traders are seeking answers to whether we are getting into a higher range or was this a false pullback. The coming days will provide the answers.
An important week:
It is a very important trading week because I think traders will seek the answer to whether we are sort of getting back into a higher range or even trying to resume the upward movement that we saw from the lows or is this just a false pullback after which the market will drift down and maybe even sink below those 2,800-2,900 levels.
The coming few days will tell us, you can see that the global space is also a bit volatile. So it is interesting how the next five days pan out leading up to the G20 meeting.
The street in the West is expecting lots of good things and you have seen some action in China as well. So I think the next five days could be quite interesting for the traders at least.
Asian Indices:
Asia is okay this morning. Couple of markets like China are very strong as you would expect because they have got a big stimulus package, the others have sort of given up some of their gains Taiwan is in red, Korea is just about flat, Hang Seng which was up 5% in the morning is barely up a couple of 100-points.
It is largely the big markets of Japan and China, which are rallying this morning; the others have sort of given up much of their gains in the last few minutes.
Policy activism is what global markets might run on for a bit now?
They are running on that because there are a lot of stimulus packages which are doing the rounds; the US is expecting on, China has already got the mother of all stimulus packages. That is serious intervention from the government to lay out 20% of that GDP (Gross Domestic Product) over the next couple of years, is serious intervention. They will be very worried about what’s going on with demand over the last few weeks.
The China intervention is quite significant not just for itself but what it could mean for the commodity universe as well. That aside the US market seem to be expecting Fed rate cut well before the 16th December. There is a bit of punting ahead of that as well.
So the market is betting on more policy stimuli which might come in over the next few days that’s what the market seem to be feeding on at this point in time. But the core economic data continues to flounder; the US jobless rate just got up to 6.5% which is disturbing and it continues to climb. We have seen the earnings data from the auto companies Ford, General Motors; it is not encouraging at all. It is a bit of a confusing kind of situation in the West where you ask yourself whether you are better off focusing on the underlying economic data which is worsening or has that largely been priced in. You are better off focusing on the stimulus which is coming in now which can lift the market out of their gloom?
It’s a tough call maybe the stimulus packages could lead to an extension of the near-term pop that we have been seeing that’s what one can play for but we can see that the market is in two minds, its not an easy one because despite all that talk after a 10% fall in two days all that the Dow could recover on the way back was 2.5%. So it’s still lacking or not smacking of great conviction just yet.
What is the expectation to work with then for the Nifty that it climbs a lot of steps or it just holds still for a while?
It is still very volatile and that is the problem that makes it a little difficult for the traders to take a call, because had volatility subsided and you had begun trading in a much narrower range, then I think traders would have had some sense. But even in the last one week the market fell off so sharply from 3,250-3,300 all the way to 2,850, so you had to react really fast because 10-12% went just like that and then you have come back to the mid-point of close to 3,000 levels. This morning it is likely and conceivable that we get back to those 3,050 may be 3,050-3,100 kind of zone as well and then questions will be asked, are we going back to 3,250-3,300 or is this just a weak pullback and then the market needs to go back to 2,800-2,900 levels.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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The big question now is that having given up a third or a bit more of the recent gains are all global markets headed for a retest. China is the only exception out here because China is just about couple of percentage points away from its old low, the October low so that’s not even had a meaningful bounce but the other markets still can lose 20% if they are going back for a retest. So that answer we don’t have yet on whether the Dow, the S&P, the Hang Seng, the Sensex, we all going back for a retest still there is a lot to lose if we are indeed going for a retest.
So it’s all holding hands, blind leading the blind and no answer on whether this is indeed going down again to the disastrous scenario of October but there is hope still because Asian markets are trying to put it in a fight today. So maybe we will as well and try and spend a couple of days testing out these kinds of levels and if they hold out who knows maybe we can bounce back from here and no go down and retest those lows. But that’s the big debate in global markets now; (a) is the relief rally over (b) is we going back where we came from.
Which brings us to question we have been talking about for the Nifty does it start pulling its upper and lower edges closer to itself getting into a tighter range or is that still open?
Everything is open as you have seen, things change very dramatically. Two days back everybody would have told you that the Nifty is headed for 3,400 and then 3,800. See how quickly we are talking about a retest of the lows. 10% gone in two days and the whole mood is changed.
This is a fast moving market. I suspect the next couple of days and today particularly could be quite volatile – whether we start sort of flattish and then pullback into the green because an attempt certainly will be there for the market to pull back. Now you saw that yesterday as well and there was quite a bit of intra-day volatility yesterday down, up and then down again. I do not know what sequence it will follow but I suspect you will see bears and bulls having their sessions during the course of the day today.
I would actually have taken a weak opening this morning because that would have probably raised the chances of a more meaningful pullback and some short covering but if you start flat, you do not know where you will end up because these Fridays tend to be pretty bad for our markets.
I do not know today we probably may start around 2,850 thereabouts. The closer we get to that 2,800-2,700 band, the more nervous will the bullish traders become because those levels have to hold out 2,700-2,800 ballparks. If those break down then I think the chances of a capitulation and a panic sell off are certainly heighten.
That these are very important couple of days for the market, you are now reaching those kinds of levels which if violated will lead to quite a bit of panic. Expect two-way movement during the course of the day maybe the morning will not be too bad but the afternoon is open.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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The global cues are not very good and we hope that Indian markets emulate Asia more than the US. Markets may see support at critical levels. Overall, it is an important day and a test for India and Asia.
Markets will approach important levels. It will be a volatile session and not an easy one.
Another terrible day for the US markets but thankfully Asia is not picking it up quite to that extent. In fact Asia is well off the lows; some markets like Japan are down deep in the red but other markets are far more stable than they have been for the last couple of days and the hope is that we will probably emulate Asia more than we do the US this morning but even so the tidings from the global space over the last 48 hours have not been good.
We have also sold down quite a bit these last couple of days lets see whether today we can clutch on to some kind of support around critical levels for the Nifty
On our markets:
We have had two tough sessions but today is going to be a very important one. Today is a test for India and for the rest of Asia on whether this is just a retracement of the big relief rally that we have had starting the end of October or are we all going to go down in one run altogether?
Today we approach important levels again, we have given up 10% from the top. I think for traders and for investors, the next couple of days would be days of reckoning on whether this relief rally is completely over and we are going down much more from here or we can clutch on to supports and try and bounce back at least once more towards that 3,000-3,200 level for the Nifty. I suspect it is going to be a volatile session, it is not going to be an easy one.
Asian indices:
Asia is not a bad picture this morning all things considered. It is Nikkei which has got cut but a couple of markets have clawed back into the green so as cues goes from the US things have not been so dire across Asia today but they have fallen quite a bit the last couple of days already.
On global cues and rates cuts:
The current frame of mind that the global markets are in, at another time they might have celebrated the rate cuts but now they ask why the need for such dire rate cuts though it was expected but people chose to see the glass as half empty nowadays, there must be something really bad which forced the European Central Bank (ECB) and the Bank of England to come in with such strong rate cuts. I was watching very closely how the FTSE reacted to those rate cuts and it just kept on sliding after they came in. It’s equivalent of a repo rate cut being announced here and then the stock market continuing to collapse after that. So that sent you what the street is making of these kind of regulatory action.
On the US markets, unmitigated bad news if we just look at the retail sales data, which is extremely important to monitor, or the jobless claims data, which came in all of it, is just continuing to point down. Near-term technicals have also started worsening a little bit the Volatility Index (VIX) has jumped back to 64, the dollar is bouncing back once again, the yen is at 97 to the dollar, none of these are very good things for equity markets, globally. The only good thing that once can see is that London inter-bank offered rate (LIBOR) continues to ease and now for 17-18 sessions continuously it has been losing a few basis points everyday.
But that aside which is a technical thing in the credit market, the global news is not being good at all. So we keep fingers crossed and one can even understand why the Dow has lost 10% in two days maybe that event of the Barack Obama or the electoral results was keeping the market afloat in that relief rally but after that people are looking at the economic news and they are justifiably getting very worried out there.
It has been more or less orchestrated though the move that’s happened across global equity markets over the past fortnight. We all rallied to the same degree, we have corrected about the same. Will we continue to move that way or might we move differently?
No; we won’t move differently and we should not even fool ourselves that that will be the case. Regardless of inflation, interest rate action or anything like that I think we are all in this together there is no question about that. Just look at the evidence of what’s happened in the last few days - all Asian markets rallied nicely and now in the last two days most markets have given up about 10%; the Dow, the Asian markets, the Indian market and most Asian markets still about 20-25% away from their recent lows, we are also that much away about 30% away from our recent lows.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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Source : CNBC-TV18
Global cues are unsupportive today. A gap down is seen as the markets open in the morning but there may be some buying if the Nifty opens at around 2,900 levels. The markets are in for a volatile session.
This is probably becoming that grey zone of trade where you need to stick your neck out and take a brave trade but the better idea might not be to do that because if you were a bear, you are making profits now after yesterday; if you were long you made profits till yesterday. Therefore, just take profits and wait for a bit, let the market tell you what the next move is.
Here is a verbatim transcript of Udayan`s comments on CNBC TV18. Also see the accompanying video.
We saw it coming yesterday that’s all you can say. While other Asian markets were partying, India started sulking in the second half of the day and that was the right thing to do, it was in preparation of what was to go on in the west, so Europe closed down, US had a big setback of 500-points on the Dow and this morning Asia is picking it up because it did not yesterday.
But we did part of the damage yesterday in preparation of the event, so maybe our fall will be not as brutal as the rest of Asia. That’s the best, one can hope for but things are not looking great globally this morning.
Even though we fell, the start will be tough for us today?
Yes, I guess it has to be. So a small gap down certainly is on the cards maybe 2-3% because we corrected about 5% yesterday but where we go from there is going to be important. Will traders go out and buy the first big dip after the fall, I think it is likely and conceivable that maybe shorts will take some profits or there could be some buying if the market opens around 2,900 levels on the Nifty or maybe slightly below that.
I suspect, you will see buying after the gap down, it’s a durable kind of buying wave which comes in after the first cut in the morning or later in the day, the market senses that this global bout of weakness will continue for a bit longer and then give up any kind of early morning pullback is something that one has to keep his eyes on. I suspect, it will be a volatile session down in the morning at least one attempted an upmove and then take it from there
Asian Indices:
Asia is not a pretty picture this morning as you would expect. Japan is down 6%, the Hang Seng is down 6.5%, almost 6% in Taiwan and Korea as well. China has not slipped so much, down about 2.5%. But bad day because they did not fall or see the US fall coming as we did.
The global situation is it almost like being back at the crossroads again? Or is it emphatically looking weak?
I think one day’s fall may not be easy enough to take that call. We need to watch for another couple of days or whether this pullback rally or this leg of the pullback rally is over. Yesterday was quite simple, we had a good rally, there was a sell on news across global markets and that should not have been totally unexpected. So after the emotion a little bit of reality sank in and a lot of commentators spoke about how much or how little the new President can do right away to stem the problems and that I thought was quite realistic assessment of the situation.
On top of that the economic numbers are relentless on the way down and that’s the problem. You can play around with the technicals and sentiment; sometimes it’s bad, sometimes it’s good but there is no getting away from the economic data which is coming in. You saw the Institute for Supply Management (ISM) manufacturing numbers a couple of day’s back which looked so weak and the market was very apprehensive after those numbers and now we have seen the ISM non-manufacturing numbers or the services’ data which is equally weak at 44.4 that reading squarely raises the problem or the fear of a really bad GDP contraction in the current quarter. The jobs data is also looking quite weak, but we got away with just a minor contraction 0.2% in the previous quarter but if you look at the October-December quarter, the kind of economic data, we are getting from the US, it would lead you to believe that we could get a really sharp contraction in gross domestic product (GDP). I don’t know 1.5-2% I am no expert on the US economics. But it would suggest that we are looking at a fairly significant GDP contraction, which the markets may or may not have priced in after a 20% S&P rally till yesterday. We need to wade through this kind of bad news for the moment, which probably caps upsides in global markets.
The key question is, Are we done with this pullback rally for the moment in the US or is it just a one off sell on news after which we could see resumption? - That call is a little tricky to take, so we wait for another 48-hour to see what the market is telling us.
We did some scaling back for ourselves yesterday, what about this morning?
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So may be that consensus will have to review its trading stance because the Nifty is going to places, where most people thought it would not go. Now where it ends in this pullback is difficult to call because it requires some global thinking as well, but it is entirely possible that this move takes you to 3,400-3,500 if the global rally continues. You could even get back to that level of 3,800 or 12,500 Sensex where we fell off from. I know that people did not account for this move itself taking it to those levels, but the market always surprise with the extent of moves, so this one also is in the realm of possibility.
On the internals and flows:
The flows are turning a bit sideways now. I think a large part of the short covering at least from the cash market seems to be getting finished because yesterday’s provisional figure was not that high. So you are probably getting to that stage where the most urgent people who had to cover up their shorts has probably done that and now the last bit of it is happening.
The DIIs (Domestic Institutional Investors) are also not in a terrible hurry to buy above 3,000-3,100 it seems. So now the crowd will get into the act.
If indeed this rally has a bit more to go then I think you will now see the retail HNI participation coming in - people who have not participated from 2,500 to 3,000 because of fear that the market would turn any day.
But as we enter the last lap of this pullback, if that indeed is the last lap, you will find retail participation coming in and that is pretty much what you are seeing now. If you look at the open interest addition in stock futures in stocks like IFCI, Ispat, Suzlon, RPL (Reliance Petroleum Ltd) typically the kind of stocks which retail HNI loves to slosh around in, there a lot of open interest is getting built up.
The midcap performance has improved considerably in the last two-three sessions. So you are probably seeing that the early part of the rally might have been driven by FII (Foreign Institutional Investor) short covering and some local insurance company buying. Now as the market has done 40% on the way up, now those guys are just getting easing off a bit and the retail HNI guys are coming in. So even from the options data, I think a lot of 2,800-2,900 puts have been written.
The general view is that the market will hold 2,800 to 3,000 kind of band on the way down even if it corrects and maybe probably has a short at more than 3,400 on the Nifty for the near-term. Let us see whether that pans out.
-Udayan Mukherjee, Managing Editor,CNBC TV18
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It’s not a done deal yet; it’s not in the bag but it looks like a very distinct advantage for Barack Obama and things will really have to go haywire for him to lose from here on. Still about 63 votes to get to get to the 270 mark but a very big lead from the announced results already, 207 to Obama, 135 to McCain. Perhaps, the reason why the US markets were up so much yesterday and the reason why whole of Asia is up today and one will have to see what India makes of it after six days of a rally which has taken us up 40% from the lows.
The rally that began yesterday will not fizzle out soon as was expected earlier. So, earlier expectations that the Nifty would probably find a lot of resistance and fail to climb above that zone of 3,000-3,200 probably is not going to come through and the market will move ahead of those kind of level. Thus, where it will stop is a moot point. There is good market sentiment around the world.
Asian Indices:
Asia is pretty smart this morning as you would expect as there is a big global relief sentiment which is swirling around. So rallies extent 3-5% across markets and the SGX Nifty is pointing out that we will fall in line as well with a 4-5% rally which should take us closer to 3,300 Nifty.
A word on the global setup this morning- There has been a lot of talk about policy and action from Obama but is it more about event relief for most market?
Yes and about sentiment, I imagine and justifiably so. People expect that there might be a change in the strategy, a new team takeover, looks at the crises with fresh eyes in the US and tries to put a plan in place often when a new team comes into place there is a new amount of energy which is unleashed and you need probably a new set of people at the helm of affairs there to take stock of the situation and try and put more crises management tools into place.
That is the market’s expectation that you will have a new and dynamic Treasury Secretary there, Obama will look at the problem with new eyes and try and get some more policy measures going. Whether they all pan out materially as the market is expecting and to what extent the rot in the US economic system and in the global economic system can be stemmed by a man or a set of policy measures is up for debate. But for the moment you would have expected to see that for sure, one relief move on the back of the hope and the expectation that a new team will try and fix things with more urgency than the previous team has managed to do and that is exactly what is playing out.
Its difficult to outline the contours of how much or to what extent this relief can play out because while the S&P may have rallied 20% from its lows, it is rallying from extremely beaten down levels and its entirely possible that it has a quite a bit more because you have just got into the last quarter of the year and if indeed the market is convinced that we put a low for 2008 by the end of October, then the relief rally which has been quite powerful already but it is still in terms of time in that got a couple o f months to go.
Let’s see where we end up with this of course the economic data is not looking good; the factory orders etc continue to point downwards. How much of it the market has priced in is the moot point. We will follow the S&P and wherever it has to go in the pullback rally and on yesterday’s reckoning it seems like it’s not quite done yet.
Nifty is done quite a bit by way of price but yesterday by the close the screen didn’t seem to look like it was in stall mode?
No, it wasn’t and I think the market players was quite savvy, they were playing for this kind of an outcome if indeed this is a logical outcome of the lead, which Barack Obama has at this point because the lead has closed somewhat. But if indeed Obama goes on to win as seems likely now the market clearly sussed it out that it is pointless looking at Nifty levels and rather best to focus on the global news flow and to play for that and that is exactly what happened in the second half of trade yesterday. People figured out that it looks like there will not be any surprises in the US election results and if election results actually came in, the way the market was expecting, then it could lead to a 2-3 days more at least of good moves in the S&P and the Dow, which might lift global sentiment as well and then you would be probably able to cross that hump of 3,200-3,250 that people have been talking about quite easily.
So people held their longs yesterday and this morning they will be rewarded for it because it looks like the Nifty will start more than 3,250 or thereabouts. Yes, we are getting to the levels given 40-45% rally after this morning’s gap up, where you would want to be cautious but the consensus has been that Nifty will probably not make it above 3,000-3,200 and we are doing it now.
-Udayan Mukherjee, Managing Editor,CNBC TV18