Wednesday, July 2, 2008

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What Happened to the Markets Today?

Today’s rally in the last hour of trade is very significant because of the magnitude, though the rallies in the last hour of trade have become a fashion since this bear market has started from February. BSE data shows that FIIs are net sellers to the tune of 688cr, and DIIs are net buyers of 421cr in the cash segment. What surprised me is then why the market rallied so heavily in the last hour, and why the rupee has appreciated today sharply from 43.42 to close at 43.17 against the dollar.

I observed these kinds of strange things happening only recently. A classic short covering must have happened very rapidly as the market has fallen very much without respite continuously for many days. Now the Nifty is at 4100, 200 points far from 3900. This gives some relief for bulls as the distance is far to breach and signal the next down trend.

Whatever happened today to push the markets up heavily either due to retail investors aggressive buying or some brave people giving support or anything, the action is not likable. Our market seems to have got junk participants. The worst thing is that, this makes many investors feel helpless and being cheated or being unable to understand the dynamics of the market. Also it makes some people alter their decision making process and makes them vulnerable to bottom fishing.

What we should be concerned about is that we should ignore these kinds of situations. They rarely happen and so statistically will be positioned at the extreme corner of probability distribution. Take this as a good signal to find next good predictable moves and participate in it. We need trade all the time. But we need to defend in bad times and take advantage of that opportunity which could be possible for us to see.

Specifically, I had seen Ansalinfra go up by 28% today. It was going up decisively from the morning but I noticed it only in the evening. As I watched at 3.25pm to 3.30pm, the stock quickly moved from 79 to 81. Many stocks went up today. All these are the ones that were battered in the recent days. Stocks like Suzlon, PVR did not make much gains. Akruti hit upper circuit at 20%. Indiabulls didn’t go up much. This tells that lot of short covering happened from one corner or the other.

One interesting thing I noticed is that the analysis done by Market Technicals section in the Business Standard, has noted that it is good to do fresh purchase when nifty hits 3900. The analysis done here is very good one and helpful for education. It may or may not happen as he says but the analysis is useful for a trader like me who bases his decisions on statistics than other reasons.

Though many stocks went up today very much that was not enough to even reach point where I sold of my stocks on Monday. This was surprising. Next thing to expect is that if the market doesn’t fall for two or three consecutive days, we need to find stocks which start moving. This is because of the ripple effect. The ripple slowly spreads to other stocks. That is where our money is.

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