Mkts to continue yesterday's trend today

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Here is a verbatim transcript of Udayan Mukherjee's comments on CNBC-TV18. Also watch the accompanying video.

It is the second trading day of 2009. Day one was good though the volumes were completely absent as you would have expected. But the price movements were not too bad at all; the indices moved up, smallcaps did extremely well, midcaps did well.

So traders would not be very unhappy about what happened yesterday and that's pretty much what we look forward to today's trade because there are no global cues, most markets are shut even today starting with the US that was last night so you expect a lot more action in the broader market, the midcaps and smallcaps and probably the bigger market trending action starts early next week when institutions come back.

On yesterday's action and expected trader activity:

It wasn't bad for the frontline indices yesterday. But the bigger action actually was in the midcaps and smallcaps and that is what you want to watch now because I think traders are focused on that part of the market. The Nifty is probably in a range, and it still hasn't broken out though it threatens or promises to every day.

 

But you are making money if you trading midcaps and smallcaps. So, till the January action opens up firmly, I think that is where the guns will be trained. Even today and maybe for another couple of days, you will see traders flocking to trading the midcaps and stock futures perhaps much more than the Nifty.

 

On the Nifty:

 

Our markets are still moving up and it appears that the Nifty is headed towards that zone of between 3,100 and 3,200 unless something happens. Of course there is bad news from closer home on auto numbers, export numbers et cetera and they continue to be bad. But the market expects that they will be bad for another month or two. But despite that in the near-term, it looks like the market is trying to inch up a bit and maybe get to that zone of 3,100-3,200.

 

It will be interesting if it gets there because this weekend you will probably have the fiscal and monetary stimulus packages coming in, and that seems like a very likely event. So that might just give it a little bit more by way of fillip and that is probably what traders are playing for here as well.

 

Then probably in the second half of next week, you start getting close to the earnings numbers. So you will probably get to that zone of 3,150-3,250, which has been a tough zone for the market to clear, around that point maybe just after the stimulus package and just before earnings start coming in.

 

Therefore it becomes even more important then what happens over the mid part of the January. Can the market then, despite poor earnings, clear those congestion zones and keep moving higher and maybe go on to levels which we are not talking about today? That is a possibility but that is the test that the Nifty will face.

 

For the moment, with small one-two down days, it appears that the Nifty is trying to get back to the 3,200 levels once and then take it from there as the earnings come in.

 

On market internals:

 

The activity on specific stocks and stock futures is quite hectic and is probably likely to continue that way. Right now it is the small guys in the pond who are really creating the stir. So, they will go after some of these smaller companies.

 

You can see what is going on. There has not been a huge buildup on the Nifty futures but if you look at stock futures, it has added 10 crore shares in the last five days. So, it is the underlying broader market reflected in the stock futures activity as well, which is really creating the buzz and generating some short-term returns for traders.

 

There are two ways to read it. One of course is that, it signals some return of interest or hope that January may not be such a bad month after all. And that might lend a little bit of momentum to the market.

 

The other way to look at it is that if for some reason the market from the middle of January gets a little worried and starts selling off because of earnings or other news, then it is getting slightly heavier on the futures front, a situation that has not existed for the last couple of months where there has been significant stock futures buildup because the more you put on there, the more you can lose if the market turns tail. So, it is getting a bit heavier. But it also lends a bit of momentum to the market.

 

So, keep watching what is going on with the futures pile up in the market over the next week, till you get to that point where it is make or break for the Nifty beyond 3,200-3,250.

 

Volumes are quite pathetic and even on the options front, the strike prices have now moved up to 3,300 and 3,300 calls are being written. So traders probably believe that it is safe now to assume that just in the next few days the Nifty does not break below 2,700-2,800 and probably now scales back to 3,250-3,300 levels by the time earnings start coming in. That is the hope being expressed on the options side.

 

On smallcap action:

 

If the market does not sell off, some of the smallcaps will generate quick return for traders and that is the temptation. I think traders also know in their heart of hearts that what they are buying is not the family gold. They know that these prices can jump15-20% very quickly for 2-3 days before the music stops and they would want to scalp that.

 

But if you are playing that game of trading in an LML or DCW or Morepen Labs or HFCL , then you just need to be a bit nimble footed and not be too greedy. The sane traders or more serious traders will not do this game at all because they know that they will get cut really badly one day or the other.

 

But if you are doing it don't be too greedy. When you get your 10% take it and go away because you don't know when these kinds of stocks fall 20% in a day very quickly. So, you just need to move on very quickly if you are playing that smallcap game, just capture whatever returns you are getting.

 

I think the better game is still in the more liquid midcap space. Smallcap is a bit of a minefield but it could run for a day or two for sure.