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Tuesday, July 15, 2008

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Bad Days Are Falling Out

After a long time the markets have started accepting the reality. Dow Jones (DJIA) breached 10.9k. Let us hope that it will close below 11k so that the bear market can run down at a little faster rate and rallies go slowly allowing us to participate and profit from rallies.

When this scenario was very clear in the middle of March, markets didn’t like the reality and wanted only to go up. When I say market, it includes market participants. March 14 would have been the end of all these games. With US Fed’s intervention to bail out Bear Stearns, the reality was given some more time. Markets traded higher till end of April on borrowed time from Fed.

As nobody can hide the reality, (there will be no honor among thieves in this context), markets came down steadily all the way back to two-year lows. Whatever US govt. is going to do for troubled mortgage companies, Fannie Mae and Freddie Mac, can have positive effect on US markets.

But our markets don’t have an option. They have reached a dead-end without any turn but only to jump into well. If govt. helps by lending more dollars, that fuels inflation in dollar currency. That leads to higher and higher inflation in US, higher oil prices (is $200 good?) in turn leading to chaos in the Indian stock markets and politics. That is not enough daily life will be affected severely. RBI and PM ji are dumb/deaf people. They don’t listen to the ‘common man’s’ suffering. If they listen, rate hikes will lead to even more bloodsheds. So there will be bloody-baths now and then.

In other case when govt. does not help, US markets will tank harder and harder. That leads to overnight overseas madness leading to gap downs now and then. Such is the danger in taking overnight positions in the present market.

Oh.. I don’t know what market it is. As I am writing this Nasdaq went into green from red and again slipped to red. Generally when the recovery happens sharply, that may not be sustainable because it implies short covering. Similar to people booking profits when stocks go up, short sellers also book profits when market steadily goes down. That booking action will be quick by human nature. But the initiation of new positions in a direction is slow in nature. If the short covering is followed by stability and steady upmove, that implies trend reversal.

Right now all roads seem to be headed for south. Better to watch out open positions. Intraday is the only safe thing to do in these highly volatile markets. If there is an exception for intraday it was on Jan 22.

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