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The markets are still very much in a fragile state, Saturday’s short sprint in the indices not withstanding.
For those who were baffled by the Sunday paper carrying market quotes, here’s the reason. The NSE was testing an upgraded version of trading software. While the NSE would know how the system performed, we know that markets did better in that special 90-minute session.
Volumes are usually low on such days, but on Saturday they were quite low. Though the markets were open for 90 minutes, around 23% of the regular trading hours, the volumes were just 16% of the average turnover.
But what the markets lacked in volumes they more than made up in the market breadth with 170 of the 179 stocks in the derivative arena closing higher in that short session. The Nifty put on a brisk 38 points on the board before the gong went off.
Despite the Saturday buoyancy the markets are still technically on a very fragile ground. For two consecutive weeks the Nifty has now closed below an important trend line, which was formed by joining the lows of the week ended 17th July (3918) and 6th November (4538). The extension of this trend line was violated last week, when the Nifty fell below the 5050 mark.
The Nifty last week made a lower low of 4692 and a lower high of 4951. This is a bearish development. This two week close below the trend line has bearish implications. A similar trend line violations have happened in the charts of the Dow and the S&P 500 as well.
In order to calculate, where the Nifty could be headed in the near future, lets take a look at the daily charts. The lows of 19th August (4353) and 3rd November (4538) are joined to get the trend line, which was broken on Friday at 4800. On Saturday also it closed below the trend line.
Counting from the high of 5310 seen on 6th January to the corresponding point on the trend line for that date gives us a value of 4720. The distance from the top is 590 points (5310-4720). As this trend line is upward sloping, the level at which the trend line was cut Friday was 4800. Deducting 590 points from 4800 you get a possible target of 4210 in the Nifty.
While the math may be right, the markets are under no obligation to fulfill the dreams of the technicians. The supports going forward are at 4692, 4538, 4353 and 4210. Think of the next level only of the first breaks.
The poor response to the NTPC follow up offer will have a section of the FIIs worried. If the G3 Auction monies are not coming this fiscal and if the response to these follow up offers from the government stable is lukewarm, there could be more concerns on the fiscal deficit front.
Not that the Government follow up offers would fail, but the merchant bankers may force the Government to see reason and accordingly price them lower to attract subscription, which in turn will mean a reduced amount flows in the coffers.
Lets now switch over to the US, where the mother of all data, the ‘January pay roll numbers’ and ‘Unemployment rate’ came in.
US lost 20,000 more jobs in January. The expectations were for an increase of 15,000 jobs. Those were clearly not met. More importantly, the number of jobs lost for December was revised to 1,50,000 from an initial report of just 85,000 job losses. This is clearly a negative news.
The unemployment rate came down to 9.7% from 10% the previous month. How can unemployment rate come down when more jobs are being lost? It is possible because the two are calculated from different sources. More about that sometimes later. This was positive.
The Dow reacted to this by falling as much 167 points before roaring back to close with a gain of 10 points. This reversal is seen as positive and the data has been digested and discounted by the markets.
The G7 finance ministers, who were holding fireplace parleys just south of the Arctic Circle with temperatures of minus 40 degrees Celsius outside, pledged Saturday to work to calm global markets and maintain government stimulus to sustain an economic rebound. That should help calm some of the worries.
However, the markets are concerned that high government debt levels in Greece, Spain and Portugal will lead to the type of spiraling financial crisis that froze credit markets two years ago. While there is no immediate trigger now, but problems may erupt any time from Europe.
Banking could be the sector to watch this week as two media reports, one positive another negative are splashed in today’s pink papers. First the positive one.
The Reserve Bank of India is set to deregulate all lending rates in the next financial year. The RBI has, in principle, agreed to free the administered rates on loans to exporters, agriculture and small industries. A draft circular on the proposal will be posted on its website in the next few days, inviting comments from the public. This will provide the banks with more elbow room to manage their loans better.
The second news is negative for PSU banks. The government has decided not to take any fresh initiatives to discuss mergers and acquisitions among public sector banks, following adverse views expressed by the Reserve Bank of India and reservations from political quarters. The bank employee unions any way were against this.
To sum it up, the markets appear to have found some support Saturday; they are still very much susceptible to a fall. One may use any counter rally in the markets to reduce positions. And if you have to trade long, use tight, trailing stop losses.
Disclosure : No holdings or trading positions in stocks mentioned or recommended to clients
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The information contained herein is the independent and personal view of the author
and should not be construed as an investment advise or a standard investment procedure
and are not the views of the Company.
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