Expect sharp bounce in mkts

Asian Indices:

There is good news across global equities. The US was up and up the most and Asia is also not looking bad, the Hang Seng is jumped about 500 points and the other markets are good. Taiwan has got brutalized these last few days, so it’s bounced the most. China is lukewarm, Korea is okay with 1.5% up and Nikkei is up less than 1%.

Is it too early to call it as a u-turn in the global situation though?

Yes of course too early, but things have been so bearish that you try and pick out positive straws from everything that is going around you. A couple of good things happened yesterday; one is the extreme spike in volatility which happened during the course of the day and the way it cooled off towards the end. So on a day when the market bounces quite a bit, we have an extreme spike in volatility and then it cools off substantially during the end of the day then generally it’s not a bad sign for the markets in the near term but we don’t want to take too much away because you have seen how global rallies have been off late, they haven’t been very meaningful or durable at all.

Crude of course, it’s very heartening that for the last 2-3 days is showing you some signs of cooling down, so keep fingers crossed out there. But if you ask most of the guys who track crude, they will tell you that this kind of a sharp sell off might lead you down USD 15/bbl or USD 20/bbl, and then once again crude will probably make a base and try and go higher from there. So too early to celebrate on crude but on the margin is it surely positive news.

If we look at what is happening in the US, the financials there are in a bit of a dead cat bounce mode. About 30% rallies in Fannie and Freddie is certainly the stuff of dead cat bounces, so its not like the financials have bottomed out in the US, they have fallen so much that, they are giving you a little bit of a pop up right now. The point as we were discussing yesterday is that, all these markets have fallen very sharply in the last 15-20 days, and therefore a technical bounce was always on the cards. Now is it a 3% or a 5% bounce, or a 10% bounce that is difficult to game because now a days the rallies are getting shorter and shorter, so for the moment you certainly are encouraged by the global up move and it could last for a day or a two. Is it a firm intermediate bottom that has been put in place, we certainly don’t know the answer to that yet.

On Inflation numbers:

I think it’s a good move that its coming out at 5 o clock in the evening because you don’t want to inject data which is dramatic in nature and markets swinging in nature and in the middle of trading because people always have knee jerk reactions to these numbers. So punters will typically build positions ahead of that and liquidate after that, so it became a nice little punting game this whole inflation at 12 o clock number. I think its good, let it come after markets, let people have time to digest it, and the next morning come back in trade which ever way. So more power to these kinds of data points which come outside of market hours, of course it robs us of a little bit of excitement but that’s fine.

The number will be around 12% but the market knows. Will the market start falling off a cliff if it is 12% I doubt it’s not very much. I think now this inflation watching game is now moved to the 29^th that’s where the more important game is going to play out with the Reserve Bank of India. In terms of inflation and interest rates I think the markets have taken the 12-14 day leap and now its saying, let us hear out what the governor has to say. If there is a rate hike, lets look at the bond market and lets see what it is doing and then we shall react through the equity market point of view as well because again there is a little bit of a divergence of opinion on whether they will move,  by how much they will move, what instruments will they move with once again, so now the inflation excitement and the inflation number gets postponed around the 29^th, that’s when the big swing if at all will happen, from cues from that side of equities.

If we do play for a pullback, how much do we play for this morning?

Its difficult to say, look at the fall, from 4200 to sub 3800, you have fallen in just a week, so a 10% fall happens after the kind of damage that has happened already so effortlessly in a week, so you are in that kind of a market where certainly there could be some short covering and that leads you up a little bit. We closed at 3,816 could we get back to 3,950 and maybe even on a slightly bigger dose of short covering closer to the 4,000 mark - It’s entirely possible, these markets are very excitable now a days.

The bigger question is what do you do from there, If there is a gap up, do you buy in that gap saying I am going to 4,200 at least, or because of what happened last time around you don’t have that conviction and gaps are not easy to trade. I don’t think there were too many people who actually took a long trade in the last 5 minutes of trade yesterday. So now you star about 100-120 points up on the Nifty and then the call becomes a little bit more difficult, so 3,940 or if you get to the 3,950 you still open a long and trade for another couple of hundred points or as the Nifty approaches 4,000 could we get hammered once again and get back to 3,800. These aren’t markets which are easy to trade at all.

For the positional trader the bigger question is around this 3,800 kind of a mark, have the global and local markets got sold to that point where they are building themselves for some kind of a durable technical bounce. I don’t know whether it’s a week or two weeks, or its month and then is it a slightly bigger rally that one can play for. I really certainly doubt whether there is a lot of joy for traders in these small one day kind of moves because they happen so fast and turn so fast that you end up loosing money than making some.

Money will be made for traders once you get some of a next 10% move, that we cant predict today whether we are going back to 4,300 from here or we are breaking down to 3,500-3,400 from there, that is slightly indeterminate despite of this move in global equities.