The close above 4,500 wasn’t quite inspiring:

It wasn’t but it kept the doors open for a little bit of a short covering pullback but this morning again to see China down 6% and then to think of a major rally is a bit of a stretch from here. So I do not know whether we will fall to much in the morning but its sort of caps the rally or any kind of a pullback that people were expecting. I won’t be surprised if we drift down even more from the current levels.

Yesterday we almost hit 4,400 and I think we will be made to work between 4,400-4,500 today once again so another at best lacklustre at worse difficult day for the markets coming up. 

Asian Indices:

Challenging day across Asia, China is down nearly 6%, the Hang Seng index is down nearly 3.5%, Taiwan, which fell yesterday, is down another 1.2%, Japan is down 1% and Korea is down nearly 2%. So opened on notch yesterday almost uniformly sliding down across Asia; not good news for us at all.

There really isn’t that much difference in terms of global cues this morning:

US is still grinding lower, crude is at USD 135/bbl which is bad news, US markets are at best iffy. I do not think people are looking at the US economic data like a hawk, as they were a few weeks back. It is all about what is going on in the commodities market there. The worst news globally is that India and China are underperforming once again as we have been saying since yesterday, the picture is so stark, look at how China is reacting compared to other Asian markets and how they reacted to the Friday fall, 6% down straightaway and we fell 4% intra-day yesterday.

The same familiar picture is coming out. We are the only market, which has gone below January and March lows for 2008. We are at 2008 lows; no other Asian market is at 2008 lows.

Generally there is disenchantment about India from the global investment fraternity. You cannot just wish it away and it is manifesting itself to serious underperformance in our market; wether it is because our macros are terrible at this point or because we are overvalued compared to some of the other markets. Whatever the reason, I do not think global investors like us right now and therefore we are underperforming.

Bernanke’s statement getting more and more hawkish about inflation with every passing day is not good news. I think in those markets they have had a little bit of sucker throughout the last few months with serial rate cuts from the US but maybe even that trigger is not going to be absent the way Ben Bernanke is sounding. One doesn’t not want to read too much into what the Fed is saying but even so it looks increasingly likely that unless there is a big bad news, which comes in from the US economy we should not bank on more rate cuts, which is not great for liquidity flows into markets which are already seeing a dry up.

What is that one might work with then for the Nifty?

One cannot be terribly optimistic barring the odd intra-day bounce, which might come through because of covering. It doesn’t look very rosy seriously whichever way you look at it. It’s looking very challenging right now from a technical perspective as well. The only question you need to ask yourself is what is the Nifty now trying to do? Is it now trying to drift into a lower trading range because the Nifty for entire part of 2008 has been dealing with 500-point ranges. First it was at 4,500 to 5,000 range, which it spent a lot of time in. Then it sort of threatened to pullout and moved into that 4,800-5,300 kind of range. That didn’t last very long and then we have got pegged back.

The question that people would be asking themselves is now are we drifting down into a lower range for the Nifty; is that 4,200-4,800, is that 4,000-4,500 but the indications are that we are probably going to settle down in a lower 500-600 point range on the Nifty, with probably the lower end of that being closer to 4,000-4,200. That’s the trading opinion and I don’t know whether that is right but there is a complete buyer’s strike out there; everybody is talking about 4,000-4,200. So you can understand why the traders can’t go out and have the courage to buy because they feel that lower levels are on their way.

Once there is absence of buying, the market can swiftly drift down to the kind of levels given that the largest sentimental constituent of the market the foreign institutional investors (FIIs) are consistently on the sell side. We have got a slightly skewed technical situation in the market now, which suggests that we could be headed lower. Surprises always happen but on current reckoning that’s what the screen is saying.