See Nifty below 4000 today amidst political turbulence

Today in the middle of the day, we will have political turbulence. Not much support is seen from the global markets also as they are weak. Amidst negative global cues, 4000 levels might beckon today.

Last one hour of trade yesterday was not good:

Maybe the market had sense of what was going to happen in politics today so that created a little bit of nervousness. But even so you could see that the market as not ready to move ahead above 4,100 and stay there, and that was very discouraging for the bulls at least. This morning one was hoping that the way the European markets were panning out in the evening and the way the US had opened up that there would be slightly better cues but sadly this morning we come back. Global factors are not helping us at this point in time, we have all been talking about and hoping for a small pullback rally at least but things are conspiring against the market at this point in time.

I suspect we will have to see sub-4,000 levels once again today. Let us see in the middle of the day how the market deals with the political factor as well. I think we will have volatile movements right now, quite a bit of choppiness should be expected but is that pullback materializing just yet on the evidence of yesterday and what we are about to see this morning, it seems under threat for sure.

Asian Indices:

Asia is not a pretty picture at all this morning, Nikkei down 2.5%, Korea is down 3%, Taiwan is down 2.5%, and the Hang Seng is down 560 points right now, Straits Times down 2%. This is not a pretty picture at all across Asia.

How potent is politics this morning for the market?

I think it is interesting to map what is going to happen. If it all happened at the same time as in the Left withdrew support and the Congress immediately went up and said okay doesn’t matter they are gone but another party is stepping in. We are all right, the government does not fall and we are ready to look forward and hold fort till the next election time which is next year. I think it will not happen that seamlessly right now.

So first you will hear the news of the Left withdrawing support today, which looks very likely then the Prime Minister will return, then the government will issue a statement and maybe 10-days from now it looks likely that the vote of confidence will play out in the Parliament. So because of these small time lags between how the eventual deal will be put in place though the market has a sense that the deal has been struck that the Left will go, the Samajwadi Party (SP) will come, so I don’t think the market should fall off the cliff thinking that Left is gone therefore the government will topple. The market knows what is going to come but even so I think that the possibility of a small knee-jerk reaction is always there. I doubt if there will be a prolonged reaction because of this maybe a day, maybe a couple of hours, maybe a couple of days at best. There will be some lingering uncertainty that okay we haven’t got it on the dotted line yet that there is peace formally on Board. The confidence vote is not happened in Parliament yet and till that you might be kept guessing.

In the interim there might be that small air of uncertainty, which leads to that knee-jerk reaction. It’s possible though the markets going into this with eyes open it’s possible that at noon today when presented with the fact that the Left has actually withdrawn support, there is one knee-jerk reaction, maybe a lot of people are waiting to buy that maybe that will be a cue for the bears to book profits and cover up some of their shorts.

It could play out that way that you get a leg down, then you get a pullback from there or the market sort of tries to bottom out around those levels. All of these are possibilities or the market may not blink at all which would be the most mature response because it knows what is going to come and it doesn’t look like there is a prospect of the government falling right now and therefore it may just ignore it beyond the way on the 5 or 10-minute reaction and says we will move on with things and the government will pass the confident vote in Parliament.

I don’t know what the reaction is, it always difficult to game but what it will make for is a touch of volatility for sure and because the event is on us right now, I think both the bulls and the bears are probably positioning themselves for it. The bear must be saying that okay I am running profits this morning and maybe that is my cue to cover up or the long is saying that is my cue to enter with a contrarian long position. I don’t know but I think the mix of expectations will make for interesting trading volatility today.

There seem to be a bit of ring fencing happening yesterday but the problem is we were discussing is there is so much more conviction moving back than front?

I think there is uncertainty on more than one score which is why, what is making for volatility; I don’t think people know what the market is going to do next. There are many moving parts right now; oil is doing this and that as I said its threatening to cool down; every time one thinks its done and now the dip is coming, its just moves back once again. It went to USD 140,bbl, pull backed to USD 142/bbl.

There is a bit of air of uncertainty on the earnings front as well; one keeps hearing about reports and what the IT companies will do, what an odd State Bank of India might report that’s creating an air of uncertainty as well because earnings season is almost virtually on us and now there is politics as well. So because of so many moving parts; it makes for a lot of volatility and traders cannot see a clean trend in this market. Neither does the bull know that he is not going to 4,350 nor does the bear know that he is going to breakdown 3,850.

What we may see therefore in the Nifty for start sub-4,000 looks likely but then one might see the market moving quite violently between its recent low of 3,850 and yesterday’s high of 4,100.  In that 250 zone, one might get tossed around quite a bit. I think one will have to be brave to go out and trade the Nifty right now because depending on the news flow things will move fast. This is the kind of market condition where in a matter of minutes one can move 100 points on the Nifty either way and get cleaned out on a stop loss. I think one need to be a bit careful whether one is bullish or bearish on trading right now because one is in a tight trading range; 200 points odd on the Nifty. It will not last very long; it will make a break either way but depending on events, the break will come below 3,850 or above 4,100 but right now in that range only the smartest of trader will make money.  

contd on pg 2..