Mkts likely to give up some ground following global cues

We did struggle through trade yesterday as well with the similar kind of cues?

Yes and today might be a bit more of a struggle because the global cues are turning. The last few weeks we have all been riding a nice little global wave and all market seem to be moving in a synchronised fashion. Sure the commodity markets like Brazil, Russia etc they have torn away from the pack so they have done much better. But even so most global markets have been moving up together and if now there is a sense that its time to give back a bit of that though its premature to say that just with two days of a fall then we might also be apprehensive on that score and not be brave enough to move against the global packs. I suspect that we will give up some more ground now, maybe grind closer to that 5,000 mark and then watch global cues over the next few days.

Generally things are not great globally; equity markets have been sluggish, commodity markets have been roaring, crude is at USD 130, so its time to wait and watch.

Asian Indices

It is a bit sticky across global markets today, the Nikkei is down nearly 2%, Hang Seng has recovered from the lows but still down couple of 100 points and China which was down nearly 5% yesterday is down another 2%, so 7% in two days, it remains the worst performing market of 2008.

For the global markets though does it look like a breather to this big run of strength or things generally turning sticky again?

The commodity picture is a problem Michael Hartnett made a very pertinent point that unless commodities cool down markets like India unlikely to perform very well because then the trade shifts to the Brazil’s and Russia’s of the world who are rich in commodities and net producers and sellers of commodities rather than consumers. So people are watching and it is almost a direct correlation which global investors are playing out which is when commodities continue to be on a tear, they play in certain markets and as soon as commodities cool down meaningfully and inflation comes off then they turn to high growth markets and non-commodity markets like India. So the correlation is quite well established now and it is not a 1:1 correlation but broadly speaking you will see probably that trend playing out within the emerging market basket.

In terms of global markets there are still quite a few headwinds and global equities have performed against those headwinds but now some of those problems are becoming more acute and more pronounced. So crude is gone up to USD 130/bbl, the Produce Price Index (PPI) went up quite a bit 0.4% in the US stoking inflationary fears once again. Earnings are visibly slowing down something, which the market is being able to ride against or rise against so far in the US to the surprise of many people. But more and more earnings downgrades are coming in.

The big question now for global markets is that after the rally of the last 8-10 weeks where most markets have gone up meaningfully do you just pause and go up once again into the summer or are these headwinds going to break this rally, break this upmove and peg us back and as long as this apprehension continues particularly so if commodity markets remain as strong, I suspect most markets will at best be on wait and watch mode and tread water and some might even correct.

So that centrally is the question you want to ask yourself that, Is the global upmove which happened of the last few weeks meeting some kind of a roadblock right now or is this just a temporary pause before which markets can rally again? - We don’t know the answers but after the fall of the last couple of days and the other news flow, which is surrounded it I think that question begs asking and people should be probably better advised to wait and watch the situation before taking big punts.

What do we work with today and do we indeed watch 5,000?

I guess so because a week back we did break below that level and found some support under it. We are at 5,100 right now I think there is every chance this morning or during the day that we get to those sub-5,050 kinds of levels. So once again in that 5,000-5,050 zone is where some trade will revolve depending on how global markets pan out next few days you will probably see a test of that 5,000 level if it holds good and if it does not you are again getting into that zone which has a lot of support as we saw last time between 4,900 and 5,000.

For the moment, I think the traders will play with that kind of level as a stoploss as the small uptrend, which happened within a range has not been broken or will not be taken as broken as long as we do not break below that level of 4,900-5,000. But I suspect there will be nervousness if we do go to those levels and break below that but that is still about 3%-4% away we do not need to worry about that just yet. I suppose those kinds of levels are what the traders will be playing with.

The unfortunate thing is that as soon as the market bounced back a bit and we saw a glimpse of 5,300 or getting towards that we have got pegged right back into that trading range. I suspect every move is more reinforcing that we have got to do more and more work right now and it is not just an easy climb out of the woods as has been the case in 2007.