Sunday, May 3, 2009

PERILOUS OVERHANG IN MARKET : RETAIL INVESTORS BEWARE

Two-month-long-run in the markets around the globe has been spectacular to say the least. Lets take a bow to that. Uncertainties have been brushed aside with utter disdain and Bulls have demonstrated amply as to who the boss was. We have had a situation where Bulls have scorned all negative news and pooh-poohed even swine flu panic. What we need to remind ourselves is the fact that all this has been achieved while nothing materially had changed on ground as far as present global financial crisis is concerned. Hence the need to take a bow!

Though we have all been pleasantly surprised, but what unnerves me a trifle is that there seems to be a concerted effort right across the world markets to give a "Short Squeeze" to Bears. And the effort has been as if a global cartel was at work. Isn't that a little scary?

Not to be daunted by such feelings, here I am taking up cudgels on behalf of retail investors to fight and win against big fishes of the market. Above 3150 Nifty was expected to reach 3450 which I had mentioned in my 31 Jan 09 post titled "Stock Market Bottom- Revelations". Nifty has been around this level for the past fortnight and closed at 3474 on 29 Apr 09. I would still maintain that from this level there has to be a decent profit taking by big fishes. No amount of good news can propel Nifty higher. So here is the time for retail investors to book profits and not think of higher Nifty levels.

If Dow is our guiding light then I must confess that even Dow has become exhausted. From relentless northwards march, Dow needs to take a breather. On 01 May 09 Dow closed at 8212. Even if Dow has to move up from here, which in itself is a remote possibility, it has to first cool down to 7600. Cartels galore cannot possibly engineer postulates of Dow Theory to fail, something which have stood the test of time. One of the postulates reminds us that manipulations can be effected for short term only.

The outlook for the US market for next week is uncertain with a negative bias. Take a peek at some of the important pointers to US economic health vitals:-
  • On 02 May 09 Warren Buffet, Chairman of Berkshire Hathaway, refused to repurchase shares of his company because in his wisdom the company's shares are not yet trading "demonstrably lower than intrinsic value".

  • Mother of all present US economic woes is the Jobs Report which will be out this Friday. The only way you can kick start the US economy is by increasing consumer spending since 70% of its GDP is linked back to consumer. And consumer spending is linked back to jobs. The report on Friday is expected to show slower decline but turn around is still nowhere in sight.

  • Thursday, a day earlier than Jobs Report, will unfold the critical report on US Govt's Supervisory Capital Assessment Program, aka "Stress Test" imposed on 19 major banks. One can expect severe shocks here since last week media reports indicated that Bank of America and Citigroup had capital shortfalls.

  • Coming Wednesday market can get wind on private-sector employment from ADP . On Tuesday, the Institute of Supply Management will report its April index for the service sector. On Monday, data on pending home sales for March will be made public. And on all these fronts uncertainty looms large.

  • As if all these uncertainties were not enough for the coming week, we will also have Ben Bernanke testifying before Congress and you can wonder your way to high heaven about its outcome.

Where does all this leave the retail investor in India? The situation demands that we show some more patience before buying. Those making profit from their portfolio should consider to make their positions lighter. And if you are the brave hearted kind, do stop by to buy some good put options. I shall also be recommending some put options in a subsequent post. However for buying in cash segment I can only recommend that you take a deep breath and hold on to your purse for some more time. Nifty has to at least test 3150 again before any further move up is feasible. In the meantime you can look up the Link List in my blog for some really good reading material. You will not be disappointed.