State of the Market|Reading the Psychology of the market

It was the week of March 09 2009 when Global pessimism gave way to Global optimism and risky assets around the world rose from written off to reasonable levels. Though we have come a long way - markets are once again at turning point where street seems to be divided between double dip theory and V-shaped recovery argument. The reality - Global economy is on for a slow and steady economic revival and market’s low volume low volatility move is reflecting that.

Market Observations

1. If 2008 and 2009 were Year of Long Volatility trade, it seems 2010 will be Year of Short volatility [read stability] trade.
2. The markets are always changing and one must be able to adapt to changing market condition. To adapt, one must be able to see the market as it is, rather than how one would want it to be.
3. Global markets: Bullish. You cannot be pessimistic when markets are trading near highs. S&P 500 closed at 1140 yesterday - just 10 points down from 52 week high


Source: Stockcharts [www.stockcharts.com]

4. We have come a long way. Remember, all major US indices made major lows on March 09 2009. What a turnaround it has been.
5. There is no fear in fear index. CBoE VIX closed at 17.9 - 22 months low
6. Nifty - Month to Date is up 3.6%. But the real action this month has been in mid-cap. BSE mid-cap index is up 5.2%.
7. Have FIIs turned extremely bullish on India? As per provisional figures, FIIs net bought 2173 crores worth of stocks in cash market.
8. Despite such a huge buy figure - Nifty traded in a choppy fashion and closed down 22 points.
9. Resistance = Rs. 11 000 crores NMDC FPO + DIIs profit booking stance + Technical resistance at 5180.
10. NMDC FPO opens today. NMDC is India’s pre-eminent iron ore mining company with 1.2 bn tons of reserves and resource; and and its production costs at US$9/ton are among the lowest in the world
11. Risk in NMDC FPO: Issue Size, Steep Valuation and the concentration of assets in Maoist-affected areas of India.
12. Reliance is one stock that has gone nowhere in last six months. Currently, it is stuck in a tight band between 970 and 1040.
13. Tata Motors has formed a double top around 800-820 and now is pulling back - gathering strength to breakout? The stock has strong support at 50 dma of 748


Source: ChartAlert [www.chartalert.com]

14. There is tremendous strength in Private Sector Bank space. Most of the frontline private banking stocks are trading near highs be it HDFC Bank, ICICI Bank and Axis Bank
15. One sector where there has been U-turn by Fundamental analysts: Cement. The oversupply argument has been thrown out of window and new mantra - Structural shift in demand. ACC, Ambuja Cement and UltraTech all trading at new highs
16. JP Associate is trading right at the turning point [200 dma]. Any strength from current level may attract investors


Source: ChartAlert [www.chartalert.com]

17. Volume Shock: Asahi India. The stock clocked huge volume yesterday; and it is trading around 200 dma. Does trading action indicate return of good times for the stock.
18. Crest Animation: Buy or Sell. The stock is trading at breakout point of 76-77


Source: ChartAlert [www.chartalert.com]

19. One stock where there has been tremendous volume activity in last few days: Digjam. The stock has strong support at 10.0-10.5. Will it hold?
20. In the markets, we’re all dumb money. The trick is hopefully just to be a little less dumb than the rest.
21. In market, it pays to be dumb and ignorant. It helps one to follow screen without ifs and buts.

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