iCharts Discussions

[rk_a2003]

The Game of Dumping

“Finance Minister P Chidambaram has asked officials to expedite the process of disinvestment so that state-owned companies could hit stock markets in time and help the government achieve the target of Rs 30,000 crore in the current fiscal.”

The government is keen to scale down fiscal deficit through disinvestment process. It may do whatever it takes to take up the Markets including arm twisting Subbarao for reducing the rates.It has got considerable support from US markets in the form of presidential election year and ever promising QE3 induction.

So, expect the markets to go up in coming months.No matter how bleak the fundamentals might be……The Game of Dumping Starts….Now.

[rk_a2003]

"Hedge funds are betting on a disaster hitting the financial markets within the next several quarters, with managers holding onto historic levels of cash.

That so-called dry powder gives them the cash they need to quickly jump in if markets sell off, according to numerous hedge fund managers and industry consultants.

Most hedge funds are carrying lower market exposure. This is not to say that they are net short. They simply want to conserve their buying power and be ready for major opportunity sets that may arise.

Many are anticipating that Europe's debt crisis, the U.S. fiscal cliff, or the slowdown in China will cause a 2008-like reaction around the globe, when stocks swiftly sold off in the wake of the financial crisis."

[vinay28]

very likely RK. By the way, you need to find out (and inform us) and also keep track of schedule of such disinvestment. Market will start reacting a week before the first one if big enough.

[rk_a2003]

Just have a look at Dowjones chart with volumes. It’s going up with average volumes .If you carefully observe it’s in fact going up with diminishing volumes during the late stage .

What does it indicate? and why is it happening?.

US woes are not going to settledown.EU problems are poking up their ugly heads one after another.... like a never ending saga. Now China demand shrinkage is confirmed at least for time being.

So there is no fundamental reason for the markets to go up. Still the markets are going up anticipating stimulus packages. The lack of commitment from the market players is reflected in diminishing and pathetic volumes.

Correlate this with the news that most of the Hedge funds are with record level of cash holdings with them.Why? In anticipation of a big fall.Now you will be able to figure out the market direction in future if not in near future.

[vinay28]

RK, one of the reasons market goes up with smaller volumes is that there are no sellers. So either investors are anticipating some (may be final) big move and not selling OR there is hardly any floating stock in the market, most being sold already. The latter is more dangerous.

[rk_a2003]

[rk_a2003]

“Yes, the bond-buying programme announced by ECB today could increase the fund flows into our economy. If it happens, which is likely, then it can help bring down our high current account deficit (CAD). From that point, the move is good for us but it also can increase commodity prices,"- Reserve Bank deputy governor K C Chakrabarty.

Well, another dose of Steroid injected by ECB.You have already witnessed 2-3% rallies in US& Europe Markets to start with. Today it could be the turn of the Asian markets .The thrust provided by this bond buying will continue for some time.Mind it, the effectiveness of such infusions are coming down day by day.

The Precious metals markets already rallied with such anticipation and may continue with it. Euro has to come down further with fresh infusion pressure.

Coming to Indian markets –Mr K.C.Chakrabarthy briefed it well .A dichotomy –CAD coming down –Very good for economy – Commodity price increase- Dampener on growth.

The market has to strike the balance…First liquidity driven rally and then fundamentals conscious correction .After all the market inherent nature is like that up and down and up.

[rk_a2003]

The official Chinese news agency Xinhuanet reported Friday that the National Development and Reform Commission, China's top economic planner, approved 55 investment projects worth 1 trillion yuan, or $157.7 billion.

ECB bond buying and Chinese stimulus plans fire and oil. Now wait for US Pay roll data. If it turned out to be a good number the momentum continues. Alternatively if the numbers are bad, still markets may go up after a brief correction hoping for QE3 in the backdrop of poor numbers.

After a long time Today FII’s and DII’s both are net buyers in Indian market.

[rk_a2003]

The US Labor Department reported that 96,000 jobs were added in August, while the unemployment rate edged down to 8.1%. Economist’s survey expected that it would be 120,000 jobs.

So the data is disappointing. Expect a brief correction and then rally may continue expecting QE3.

[rk_a2003]

FUNDAMENTALS PREVAIL

Have a look at the Comparative chart of Sensex Earnings Estimates (SEE) vs. Sensex. You may observe that while SEE is steadily declining the Sensex move is not in the same direction .Well market survives on Hope and Despair. We may assume that as the SEE is forming a base from Feb12 to Aug12 below 1300, markets might be hoping for its reversal and upward journey. As of now no such indications are visible at least in near quarters.

Just demographical advantage factor cannot guarantee the growth. It needs some planning and active intervention of state to fuel the growth .Though its a million dollar question that how long such type of growth can be sustained? If we peruse this question further it can be equal to opening a Pandora box. So we leave it here and confine our quest to the restricted territory of growth and Index.

Consider China case- It is one state that is actively pursuing growth,it’s aggressively pursued the growth story banking on demographic strength and showering all possible incentives to the local Industries. It achieved a cluster of advanced regions. They are so advanced that by visiting them even the Americans felt envy.( Believe me I heard it.)

Once the double digit growth came to a halt and started reversing influenced by multiple factors, the Chinese administration started doing everything in its power at least to sustain the depleted growth %.It reduced rates, offered helping hand for EU to come out of recession. Now announced stimulus in trillions .All the required and apt moves taken up by them.

Look at the Indian admin. What is it doing? Damage and damage control nothing else. There is no active intervention for growth. When the whole system is corrupted expecting sincere efforts towards growth could be a mirage. Expecting a growth oriented policies and active intervention in sustaining growth from such an administration could be fatal for our portfolio health.

Coming back to our Chart….The Sensex is diverging from SEE in anticipation of reversal of diminishing earnings. If this is not going to happen, what will be the outcome? Well, still it may go up fuelled by liquidity .One of the reason for this divergence could very well be this global liquidity.

But, at one point of time with the slightest reversal of this liquidity flow( make a note….’slightest’) the indices may nose dive ….. Fundamentals prevail……

Can we time it…..You have a cluster of technical methods which can help you in this, the only thing you need is to be aware of the fundamental scenario and the big picture and actively look out for the possible triggers. Be prepared for a possible reversal though it is not in the near future.

It may also look crazy to pen such an article when all the Global markets are in euphoria with injected Steroids....What can I do? that's the way I think.

[vinay28]

RK, find out how is SEE calculated?

Yes, reversal may take some time BUT if and only if two important decisions are taken viz. (a) price rise of fuel and other commodities which add to subsidy burden and (b) rate cut, both of which are likely soon. Note that we are so much on the brink that I won't give more than a week for patience of the mighty to break down. Hopefully, astrological aspects may come to rescue.

However, it shouldn't matter a damn for a trader who just has to go by his signals only.

[vinay28]

The most crucial events are on 12/09 are (a) voting by German constitution on europe rescue fund, (b) Holland elections and (c) Reserve Bank of New Zealand's rate review.

Then 13th sept fomc will decide further course of markets.

The euro may go to 1.30 but I feel one should have hedged position by 12th noon IST. ECB's bond purchase will only hurt germany and holland since money is being taken from them and given to others such as spain while ecb's net position remains same. That's why as spanish bond yield fell, german bond yield rose.

[rk_a2003]

Thanks Vinay,

For posting the nearby events.Germany&Holland pain is PIGS gain. France 'Socialist' Govt.is going to implement 70% tax on wealthy people. How is it going to effect?.

Euro may rise initially out of the relief that it's going to survive. Later it obviously has to come down out of potential trillion fresh euro's infusion.

As there is a demand guarantee for Spanish bonds from ECB the yield of Spanish bonds came down from record highs.

[rk_a2003]

"while ecb's net position remains same".I think nowhere it was stated.Even if they say so it's hard to beleive that without fresh paper they could do it.

[vinay28]

as of now that is that is true RK and that's why I said it takes from germany and holland and gives to others