State of the Market|Reading the Psychology of the market

When market participant fail to make up its mind on how the future looks like - they look at price on the screen to visualize future. The market globally in 2009 ran on expectation of strong global growth in 2010. But in last one month everyone seems to be unsure on shape and size of the recovery. There are “WHAT IF” questions being raised.

Policy makers have been successful in putting in a bottom to the most wrenching crisis and recession of the post-World War II era. Yet the outlook remains uncertain. That’s because the bottoming process, however encouraging, does little to inform us about the character of the coming economic recovery…..Stephen S. Roach

Market Observations

1. Markets expected that RBA (Reserve Bank of Australia) would hike interest rates by at least 25 basis points. BUT what happened - The RBA decided to hold off, making no change to rates…Even Central Banks are not sure.
2. It is very difficult to make money in a volatile market environment because nothing sticks neither gains nor losses.
3. Market players have been much more inclined to sell into strength rather than worry that they are missing out on future upside. The bounces do not indicate any pent-up buying demand.
4. When market turns choppy and bearish - it becomes difficult market to navigate. The destination is known but not the path
5. Do Fundamentals follow prices? Credit Suisse has gone Under Weight on India. Reason - India looks less exciting from a valuation perspective
6. US market rallied hard for second day in a row thanks to encouraging economic data points - rise in pending home sales and double digit increase in sales by Ford.
7. It seems S&P 500 is pulling back to 50 dma of 1113.
8. Despite two day bounce, bears are still confident because there is no leadership and how the chart setup has become post sell off.
9. US policy makers are in panicky mode because of 10% unemployment and till unemployment rates are high - one cannot rule out huge policy risk financial markets faces.
10. Today morning Asian markets are trading with +ve bias. Will lows of last friday hold on Nifty?
11. Month to date - Nifty is down 1.06%. Yesterday, Nifty lost 70 points to close at 4830.
12. FIIs net sold another Rs. 455 crores worth of stocks in cash market. Are DIIs giving up the fight - they bought stocks just worth 42 crores in cash market yesterday.
13. Technically, Nifty appears set to decline to 200 dma which as of today stands at 4622
14. Yesterday, all sectoral indices closed in red. The outperformance came from FMCG, Health Care and IT sectors - defensive sectors - typical text book style.
15. Number of Nifty stocks trading below 200 dma = 16
16. Reliance is at 200 dma of 1028. Will Reliance lead the market down to 200 dma?
17. Real Estate stocks are in strong down trend. Every small recovery in Unitech and DLF is getting sold into
18. HDIL is the only liquid front line real estate stock trading above 200 dma. The stock has strong support at 200 dma of 293.



19. Two stocks where street is disappointed with last quarter earnings but still optimistic on future - Aban Offshore and Glenmark Pharma
20. Technology stocks - TCS is trading just above 50 dma of 727 whereas Infosys is also trying to take support at 100 dma of 2390. Can they arrest the market decline?
21. Dream Talk = Build a portfolio of undervalued stocks, with strong global franchises, that employs little financial leverage, and is experiencing strong upward revisions in earnings.
22. One stock where there seems to be strong underlying business cum technical momentum - Karuturi Global. The stock made fresh 52 week high yesterday.
23. Bank of Baroda is pulling back after making fresh 52 week highs. The stock has strong technical support at 545-560; and valuations also look attractive.
24. Will 2010 be Year of Bharti Shipyard and ABG Shipyard? There is strong underlying technical momentum and it does not appear that it will end anytime soon
25. Consumption theme is back and with it stocks like Titan and Shoppers Stop
26. Technical Analysis of top 200 traded stocks. Here’s the Technical Screen
27. The technical screen is exclusive for contributing members. Become contributing member
28. Everybody’s brain operates on a preprogrammed guidance system. We create subconscious “rationales” so compelling that facts that contradict them are usually rejected. Our brains dismiss new information that doesn’t fit neatly into our ideas of reality
29. The Biggest problem in Technical Analysis = Wishful Thinking.
30. “It’s better to be wrong than wrong and stupid.”

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