Saturday, June 28, 2008

Markets Got Butchered! Feeling Some Pain

Lot of bloodbath happened in this week in the Indian stock market in the name of overseas cues and oil spike. The week started with bloodsheds and was becoming positive on account of short covering. But the overseas madness has taken the breath of the bulls.

It was a FnO settlement week. I knew that it will be full of extreme volatility swinging up and down intraday. On the Thursday (FnO settlement happens on the last Thursady of every month), nifty behaved exactly as I had expected. It swung in and out till noon and after 2-2.30pm it decisively went up. But what surprised me most was the fact that it is only the nifty which behaved like this. All midcap and secondline stocks bore the brunt.

Some say the interest rate hike declaration by RBI in the after hours of Wednesday was the reason. But the fact speaks for itself. We should look for facts in the statistical data. From the start of June, FIIs continue to remain net seller almost everyday pulling out 500-1000 crore on the net while DIIs continue to remain net buyers with 200-400 crore on the net.

The DIIs pushed up the markets on the settlement day but FIIs selling offset it. The reason was clear. The rate hike was only 50bps and doesn't affect the industries very much. As markets were already butchered for a straight five days streak with increasing daily range, the rate hike effect was more than enough. So DIIs bought naturally. But FIIs remaining net sellers that too in the last month of the quarter similar to previous quarter indicates they are in bearish in the mode to book long term profits to improve their balance sheets as they have to show their quarter results in the coming weeks.

I expect the markets to become better in the next month as FIIs selling gets subdued and DIIs naturally start buying. But there are possibilities for alternatives if FIIs continue their frenzy to force RBI to further increase the interest rates. Because FIIs selling depreciates the rupee, this has direct impact on the oil imports and hence inflation.

Already imported crisis from US. It seems more bloodshed ahead till the end of the year but I see a mild recovery in the medium term. It that doesn't happen soon panic will settle and great buying opportunities will emerge fromt he bottom.

I felt pain as I took positions at the height of Thursday in midcap stocks as the positive sentiment of Wednesday's closing was followed through to the opening on that day. Many bulls take positions at that time. But being a settlement day I didn't put stop loss expecting the steep recovery by the close. But I was cheated as only Nifty behaved like that and all of my stocks got hammered. Later hell broke loose in the US markets without any apparent strong negative signal and an imminet gap down on Friday took away all my hopes (some cash). Of course this is not a heavy bleeding but 50% portfolio was at risk and 10% of that has (my limit for loss) reached on the downside.

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Friday, June 20, 2008

Waiting for the Weekly Inflation Data

US markets closed up yesterday night. But not much gain except that of Nasdaq. Asian markets are looking mixed. Today being Friday our markets will take either direction swiftly in the afternoon.

The most interesting thing to look for on Friday, especially these days, is the inflation data that will roll out in the afternoon. Fuel prices were hiked the two weeks before. That effect will be captured in the today’s inflation data. The general consensus on today’s data is a huge jump from last week’s 8.75%. Many expect it to reach nearer to 10% what to speak of crossing 9%.

Last week I was surprised by seeing sudden spike from 8.24% to 8.75% within a week as the fuel prices were yet to be hiked. But in fact this data doesn’t show the full time effect of inflation but only a part of it. As time goes, the ripples of inflation spread to other items and the full effect can be known after few weeks of the event.

Yesterday’s downside was with low volumes signifying the waiting nature of bulls and bears alike for this data. Truly inflation is in a strong uptrend since February this year. It is not volatile but a good bet in these volatile days of stock market.

Statistically our markets fluctuate till noon, and go up suddenly till the end on Fridays. The US markets go down in the night as per statistics. Then there used to be a crash in Sensex on Monday.

I expect the same today as the previous two days are down days. But it can happen that inflation gives a huge spike and that can encourage bears to plunge the market in anticipation of RBI’s action. Let us wait and see the swift move that the market will take after two o’clock.

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Next Good Bets Blog

Finally I had decided to setup a blog to put my thoughts out about the stock markets/trading on a daily basis. This will also help me in checking my analysis with results coming later. Only worry is that whether I will continue, regularly post or stop it somewhere in the middle. For now let me go ahead.

If you wonder about the choice of the title, it came to my mind when I realized that I always try to look for opportunities ahead. Not in gambling as it seems but in the stock market.

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