State of the Market|Reading the Psychology of the market

1. The S&P 500 has now traded for 24 sessions in a row without a deviation greater than 2%….the longest streak since July 2007.
2. Overnight CBoE VIX has slipped below 20 - first time since August 2008.
3. Nifty is also exhibiting extremely low levels of volatility. When was the last time you saw Nifty moving more than 100 points in a day.

Are we returning to periods of extremely low volatility? It feels like morning after the storm.

Market Observations

1. One must accept what market has to offer. You cannot make the market do what you want it to do.
2. Right now, the problem is we don’t know what market wants to do. Broader market appears very strong but Nifty/Sensex seems to be struggling to post gains
3. Most of the front line names appear overextended on charts. Hence, they are finding it difficult to post incremental gains from current levels
4. The dollar strength seems to be having no major impact on Global equities. Is this the new trend? Dollar - no more a risk aversion trade
5. Overnight, US market continued with Santa Clause rally. Most of the US indices closed up 0.5 to 1%.
6. Today morning, Asian markets are trading with positive bias. SGX Nifty suggests negative opening for our markets.
7. Global cues are failing to have an impact on our market…atleast on Nifty
8. Month to Date - Nifty is down 0.93%. Nifty has practically gone nowhere this month.
9. Yesterday, Nifty inched up 33 points to close at 4986. This was the second consecutive day Nifty traded below 50 dma of 5003.
10. Liquidity: FIIs net sold stocks of worth Rs. 110 crores whereas DIIs net bought stocks of worth Rs. 510 crores, as per provisional figures - on previous trading day. (Cash market figure).
11. Futures market: FIIs net bought 422 crores worth of index futures; and net bought 542 crores worth of stock futures.
12. Where is the Volume? - The F&O turnover dipped to at 60 289 crores as against Rs. 70 627 crores on preceding day
13. Health of broader market: Sideways bullish. The mid-cap index closed up 0.78% whereas Advance Decline ratio was 1.8.
14. One sector that yesterday surprised on the upside: PSU index. SAIL, NTPC, STC, Power Finance and REC - most of the PSU stocks were up smartly yesterday.
15. NMDC and GMDC are moving up again after pullback/bullish consolidation. Can one expect momentum once again in these stocks? If we go by history, probably YES
16. Most of the front line technology stock charts look overextended be it TCS, Infosys or Wipro.
17. Undervalued?: HCL Technology is expected to post an EPS of Rs. 30.5 in FY11. At CMP of 356, the stock is trading at 11.7 times FY11 earnings - at significant discount to front line tech names.
18. Overvalued: Gas Authority of India Limited is trading at PE of 17. This is extremely expensive considering growth projections of 4% CAGR over FY09-FY12. [Technically, stock continues to look strong]
19. Technically Down: There are four Nifty stocks trading below 200 dma - Bharti, Reliance Communications, Idea and R -Power.
20. One theme that is making its present felt in current market environment: Agri stocks be it fertilizer, irrigation, pesticides, seeds, rice or food processing.
21. BSE FMCG index is down 4% in the month of December. Reason - Inflation? There are also reports that GST implementation may end tax holidays for manufacturing units in tax exempt states.
22. Most of the Steel stocks are making a move. Keep an eye on Bhusan Steel which is consolidating above 50 dma.
23. One sector that has lost momentum = Autos. Most of the auto stocks are trading sideways.
24. ONGC at work: Keep a check on Nifty. Atleast that’s what seemed like yesterday.
25. Big Price Volume movers that grabbed my attention yesterday: NESCO, STC India, Glodyne Technoserv and Aegis Logistics.
26. Breakout stocks are best buys on pullback. Here’s the Momentum Screen
27. The momentum screen is exclusive for contributing members. Become contributing member
28. Anger and Disappointment are two additional emotions that powerfully influence trading decisions.
29. We become angry and disappointed when market does not behave the way we want it.
30. If you accept that you are powerless over market action, you will be less angry or disappointed.

Please share your comments on what you think of market observations, market and trading in general

Disclaimer - The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers