It’s Monday morning and this is a very important week. We have had lots of volatility last week. This week we come in with some good cues from global markets and some disturbing news from the political arena. Earnings are looming throughout this week. It’s a very important phase for the markets because there are all sorts of cues, which are coming in, and we are poised just under that 18,000 mark. Is it further ahead or are all the cues going to peg us back is what we play for this week.
A crucial morning
Thankfully the global cues are good because that could have worked against us as well. If the US jobs data was not good but that is very good may be there is little bit of impetus this morning as we go in to trade. The political noise is building up, which is not good news and I think the market will have an eye on that and of course there is earning in the middle of the week. You could see a bit by a way of volatility and we are very close to that important mark too.
I suspect the way to look at the market may be we gone little push up and may be get to18K and all the factors come I to play like politics and earnings. I suspect it will be an important week of trading and you’ll probably see two-way moves in the market up and down staring this morning.
Asian Indices
Asia is having a good morning as you would expect after how the US closed, Shanghai is opened after five days and is up 3%, Straits Times going strong up 1.25%, the Hang Seng is up 500-points. So very solid cues from the US and that at least in the morning should ensure that we see a bit of green, maybe even nudging us close to that 18,000 mark.
Have all concerns abated?
No, I think the news over the weekend is pretty good, the US data. There are two ways to look at it; one is that maybe the economic data is suggesting that US is not getting into that tricky a patch economically speaking as the last August Data seemed to suggest. The revision of the August data is quite pertinent because that was the one, which had injected a lot of recession’s fears into the markets, but the fact that’s been restated by quite a margin eases the economic fears, as such.
One can argue that if the economy is not doing so badly will the Fed move again aggressively to cut rates in the next meeting and thereafter because after the last rate cut I think the Fed futures market was factoring a fair possibility and a fairly a real possibility of a rate cut again in October, that has receded after the economic data which has come in over the weekend. But net-net one would still have to say that the biggest fear of emerging markets is that the US goes into a recession squarely.
Liquidity is fine and it will continue to come into emerging markets without doubt because this is where growth is but what you want to avoid is a tricky kind of global economic patch led by a US recession and every set of data from the US actually should be celebrated in the emerging markets rather than fearing that we will not get rate cuts and that will be bad for us.
There is enough money anyway which is going to come into emerging markets just that the US does not go into recession and that is the reason why the Asian markets are reacting in this fashion today. They are not worried about the prospect of no rate cut rather they are happy at the prospect that US is not going into a recession and I think we should take that as good news, what has come in over the weekend and that is probably the reason why one will find our markets opening in the green as well today and maybe even getting a dash towards 18,000.
Politics – near-term risk to the market
This is probably emerging as the key near term risk to the market of course the market knows that this has been a real risk and I don’t think anybody is fooling themselves in the market that the silence of the last 4 or 5 weeks is going to last forever. I think it is just a matter of time from the market perspective when the rupture happens again and may be mid-term elections are called for that is pretty much what the market expectation is.
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However with every passing salvo, which is fired by either of these two parties I think the possibility is getting more real. We hear that there is a meeting between the Left and the Congress this Sunday, which may go on to a polite bureau meeting this 18 th and things are probably slowly coming too head. Sonia Gandhi’s fairly aggressive speech suggests that they also resigns themselves to the mid-term elections and is just a matter of time now.
I think from the market perspective there will be a little bit of jitter once the final announcement of what the fear comes through and then if the elections is really as early as Feb-March next year as is the rising fear now. Then I think you’ll see a little bit turbulence in the market too because of the uncertainty factor.
In the near-term, probably more so then global economics and global cues, domestic politics is probably emerging as the key risk factors which the market has to contend with and I think in next two months or so you will get bad news from there, which is why there seems to be a general feeling that this is the last bit of the good news for the market. We already had a big rally, we may go up a little bit more but then the bad news starts coming in, the headwinds in terms of political news and then that might peg us back in to that correction.
Building up a base formation around 5,200
Internally the markets become a bit narrow over the last few days and that is a bit concerning because even if you saw on Friday the market did not fall too much but that was largely because a few stocks stood out, Reliance, Bharti Airtel the odd Larsen and Tourbro, BHEL. So the leadership has become very concentrated once again. On the stock futures and midcaps you have seen correction over the last two-three sessions that’s a sign that the traders are becoming extremely cautious at higher levels, and they want to take some profits off rather than build positions at this point in time. And stock futures usually is a very good sentiment indicator of how people are feeling.
So there is a general feeling in the market that we are approaching the last leg of this rally, it’s been a spectacular rally it has to end sometime at least in the near-term. And the traders feel that maybe we are approaching the end of that rally.
Let’s see how things move from here but the flows are still strong and because the flows are not dwindling quite yet the bulls have not given up, you can see that every time it falls they manage to pull it back using a few stocks.
So I don’t think they have thrown in the towel. I think from the perspective of the bullish traders they feel that there is a bit more upside left in the market, I don’t know what that is 500-600 points more on the Sensex and then if the correction has to come in it will come in.
Also a lot of people have started predicting that correction and stock futures have started correcting already. When so many people expect a correction sometimes the correction does happens a bit later and that is probably one factor that you need to keep in mind even from an internal perspective.
Outlook for the market
It’s a tough call. In the last three days what you have seen it makes very difficult to call the market in the near-term. You could easily have a situation that because of the good global cues people may want to push the market a bit higher and then the bad news its the market in terms of politics etc next week or something comes out from the earning season.
But there is one scenario that you rally a bit more from 17,800 maybe to 18,300-18,400 and then depending on the news flow the market either corrects or charts higher levels.
So there could be a bit more upside maybe go to 18,000 and then correct, we could start correcting now or maybe the market has much more upside, which people do not think is possible right now. But markets generally surprise, so it may go on to the extent where people are surprised and they start covering up their positions and then the market corrects.
So it’s a little difficult to call right now. I think it will be a bit volatile for the next couple of days within that 200-point Nifty range till we find direction once again. Best not to trade with large quantities now because its really a tough call on whether we are going close to 19,000 or after a couple of 100-points more we get pegged back into a deeper correction.
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