Friday, June 16, 2006
Can u smell the honey ?
I am not bearish by choice, but that is what I am seeing. Markets are going through a technical bounce, which very often happens in a bear market and I am quite certain that we will see new lows again. How soon can be anyone’s guess?
The BSE Sensex (Picture at the bottom) moved from 9000 to 12671 a move of 3671 points and from 12671 to 8820 another move of 3851 points a total of 7522 points without any consolidation.The recent move of the markets has baffled everyone; however the moves are all too familiar to anyone who has been in a bear market. Markets need to correct in time, price correction is just one of the variables.
It’s quite clear to me that the current ongoing rally in the market is just a bear trap and the markets will see new lows, the ongoing pull back is absolutely manic and it seems like a new bull run has begun.(Or has it)
However after such a sever breakdown the market needs to breath a bit before its starts moving up again, volumes need to thin out and the volatility needs to subside.The techinical bounce can go all the way upto 10500 or even 11000 i doubt it can sustain that for too long.
Monday, June 12, 2006
For the love of “The bounce”
On the trading floor however, traders are always bullish. Being the only bear I fear my life is in danger and worry about the bulls hatching a scheme to castrate me, these things happen to bears often. (Unless the bulls go broke first)
Since the last time I wrote, the markets have continued their declines. The BSE Sensex was at 10786 we’re currently trading at 9175, down another 14% in a very short time (only 15 days). From the peak the BSE Sensex has now lost 28% and everyone though May was gut-wrenching.
Traders in India have been in love with a market bounce, and rightly so. In the last 3 years every dip has been a buying opportunity for them. However the recent fall was no bounce and a lot of people were caught off guard, everyone kept jumping back in the markets … lesson learnt.
Calling a bottom to this market is going to be very difficult and we should refrain from doing that. Our markets are taking their cues from global markets and are now very closely correlated with them. (Except for the fact that when others fall we tend to fall more than them).It is quite clear now that the rise in interest rates is causing a liquidity crunch. Japan and the US which were the providers of cheap capital(to the world) are no longer providing the same. I recently saw an interview of Geroge Soros who says that around 200$ Bn was called back by Bank of Japan (commonly termed as the carry trade). With the Yen rallying 7%, those borrowing money from Japan have not only taken a hit on the Yen appreciation but also on the fall in commodities and emerging market prices, I worry if a lot of money were to leave India how much lower can we go.
Coming back to the Indian equity markets, we have taken a big hit over the last 2 months down 28%, the pessimism is increasing and more people have begun crossing the bridge to Bears Ville. The obsession to buy however has not subsided; it’s difficult to undo what has been done over the last 3 years. Everyone is hopeful of a bounce in commodities and stocks, if anything I have learnt hope is one emotion that should not be in any trader/investor’s vocabulary. We’re forgetting how difficult it should be to make money in the equity markets; the era of cheap money is over. What starts now will be a painful journey that I think can last for the next few months. Where we go from here is anyone’s guess. I once again urge investors not to jump in too quickly and let the market tell them when it has bottomed out.
