The markets were extremely volatile on Thursday, but we can go into the next week, feeling better. There's a possibility that we may start seeing some percentage points upmove. The chance of the markets stabilising is a bit more now. But the next week would be a decider and would need to go there without losing too much ground.
It was a rocky day on Thursday but on Friday the global nerves seems to be much better, the US has stabilized seemingly and the Asian markets with the exception of China not looking too bad of course today there is a surprise there is no pay-in/payout, the banks are shut and the pay-in/payout has been deferred till Monday and that might change equations for a few traders but generally the markets were extremely volatile yesterday hopefully we will see a little bit more by way of stability.
Thank god it's end of the week:
Yes, next week is a cracker, so we need to go into next week feeling slightly better. Yesterday’s close was very poor, I think it might have dented sentiment a little bit, the failed attempted at recovery a in the morning and those questions will linger even if the market starts up.
It is possible that we’ll start a couple of percentage points up again like we did yesterday, more than that may be get closer to that 18,000 mark or somewhere there and then second half of the day questions will be asked. So the chances of stabilizing a little bit more today are higher because for the second day running global markets have not fallen too much. We will wait and watch but next week will be the decider. We’ll just have to go through over the next couple of days without losing too much ground.
Asian Indices:
Asia is not looking too bad this morning, China of course, there are fears of tightening out there but other markets are roaring. Nikkei is up 3%, Straits Times is up 2.5%, Hang Seng is up more than 5%; meaningful rallies across Asia those remain intra-day volatile. The morning has been extremely good for most Asian markets.
Next: The trigger-happy times
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Global cues:
Last couple of days there’s been seeming stability of course with a touch of volatility and one would expect of what’s gone on in the last few days but at least the markets are not going down to new lows, somebody was making a point yesterday that the VIX had a very sharp spike and cooled off from there.
In the past sometimes when VIX starts cooling off, cools off quite a bit, so I don’t know whether this is the end of volatility for the global markets for the next 2-3 weeks atleast, if that is the case it would be extremely welcome but I still think that next week is where we’ll get a sense of where global markets are headed.
On what the Fed does whether in the next 7 days there are no other adverse developments because there are these small things that are happening like the SocGen USD 7 million fraud and one does not want to see these kind of financials accidents, the more these happens and more regularly they come out one gets a feeling that the West is still vulnerable to bad news.
China of course in the last couple of days one has noted that it has not has not participated in any emerging markets rally, all other markets have rallied and one tends to worry little bit about China because that is our only realistic peer. Of course they are correcting for the internal reasons of their own but those may have ramifications globally.
This is not to say that everything is looking gloomy and doomy across the world. Indeed in the last couple of days there has been some signs of stability but lets see how things pan out and by the end of next week we’ll probably have a better handle of how things looks for the next month or so.
We were looking trigger-happy on Thursday though that was concerning?
It was and the market remains quite volatile but the general feeling in the market now is that market will play copybook fashion; as in it will go down test 4,800 then come back to 5,500 and it will trade in that range, it will not breakout significantly nor will it breakdown below the level of 4,500 and that certainly would be the likely scenario because typically after big fall one sees periods of consolidation and neither the confidence to go out and make bold up moves and since the fall was of great proportions maybe will not break that low as well.
But something is telling me that probably not be just range bound and trade that 700 point range that people are talking about because there are too many events stacked up over the next few days. Look at what will happen by the end of next week?
There is a potential domestic interest rate trigger, there is a global interest rate trigger which we don’t know we could be surprised on both, earnings season would have come to an end in India, we would have had a settlement and probably started the February series extremely light and lighter that we have been for many months in F&O market.
As we go into next week; the week after that we will probably have a lot of money coming back into the market USD 10 billion and we would be three weeks away from the Union Budget. I think there are too many events and triggers stacked up for the market to be absolutely range bound. Is it possible that the news flow is bad and we get broken down to the levels where we tested? It is a possibility though not a very strong possibility. Is it likely on the other hand and this will surprise the street if we go well beyond 5,500 Nifty.
Just imagine this for a scenario; the RBI cuts rates, the Fed cuts 50 bps, we start February F&O with 30,000-40,000 crore of open interest which is extremely light and we get USD 12 billion back into the market; that’s potentially an explosive cocktail. I don’t know whether it will pan out like that – it may not but if it does for a light market to put on 8-10% very quickly is also easily possible.
Next: Internal concerns
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So prepare yourself for surprises over the next ten days and I would be surprised myself if the market remained extremely boring. I don’t know how much participation there will, how many people make money and whether volumes will pick up but I think price movements can be very jerky both on the way up and way down by the end of next week.
Internals remain a concern:
It is very concerning and I think the fact that FIIs have not given up selling in the cash market despite the fall is a little disturbing for me because one can understand selling at higher levels but if around 5,000 Nifty, there is still half a billion dollars of selling which is coming in and it is overwhelming the value buying which might also be happening from FIIs, it is telling you something, I know they are covering up some of their stock futures arbitrages but the cash market selling is a little disturbing so I do not know what to make of it.
Other internals are extremely mixed up; you do not want to read too much into F&O internals where trading volumes have dipped to 30%-40% of their peaks, so I do not think those internals matter too much. Do you get a sense from the futures market that the bottom is there, I do not know because yesterday they did not smack of that. So we look at liquidity closely for the next few days, volumes have dried up completely so I do not think the internals are giving you any firm cues.
The one thing is that we are headed towards a much cleaner February start in terms of F&O and I think by the time we end the series and get into the next one whoever had to cut out would have cut out.
How does this news of no pay in-payout go down?
It’s baffling why the exchanges are doing it or whoever is leading it, I don’t know if the exchanges are deciding this. But it’s a little baffling; you don’t want to inject any kind of surprises into a system, which is already so badly shot. You just let things pan-out quickly so even a small whiff of something getting destabilized because this is a system, which is under intense strain for the last couple of days. Brokers are not letting you buy, exchanges are shutting down many terminals, small brokers are probably still licking wounds and unwinding positions. Let pay-ins and payouts happen smoothly you don’t want to inject any kind of uncertainty into the system.
I don’t know whether this one will have a meaningful impact on the market but questions have been asked this morning on what happened, why no pay in-payout today. Could there be a small section of people who probably took positions on Wednesday will now have to wait for Monday for their pay in-payouts that’s not a great thing to happen, why subject the system to all these kind of things.
I am personally little baffled that the exchanges have chosen to do this there have been instances in the past when the banking system was not working but we have gone ahead with pay-ins and payouts and that would have been the right thing to do in this case as well instead of just postponing the thing to Monday. Thankfully today we don’t have bad cues from the US and maybe things will be slightly orderly in our markets. But I still think this has a potential of doing a few wrong things in the liquid midcaps space if indeed it came to that.
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