Tuesday, November 17, 2009

Asian Stock Market Blues - Frequently Looking to the West

This has become a routine for Asian Stock Markets - shake like an aspen leaf at every sneeze in the US. On 17th November almost all major Asian stock markets closed nearly in red, after trading the entire day in red. This was after US markets in last trading session had made a spectacular up-move, closing at a new high of 2009. So the least one expected was a slightly positive mood in Asian markets. But that was not to be! I am told that Asian markets wore such a sullen look on 17th November because Ben Bernanke made some not very rosy comment on US economic recovery. But tell me frankly, don't we already know all that.

Not withstanding the above ramblings, the reasons why markets across the globe are exhibiting high volatility are listed below :-
  • Stock markets moved up from March 2009 lows primarily driven by huge liquidity, which in turn came into existence owing to generous stimulus packages from respective nations. Now there is apprehension that since the recovery in stock markets has been spectacular, there might be a case for withdrawal of stimulus packages by most nations. But the fact is that leaders of G-20 nations have promised to keep the stimulus packages in place for some more time. Premature withdrawal of stimulus can result in a prolonged depression as was witnessed during the Great Depression of 1929.
  • Weakness in Dollar is pushing the commodity prices, oil prices, gold prices and also the stock prices higher. But any short term technical strengthening of dollar from here can send the other asset prices spiraling downwards. The moot question is when and that is creating nervousness in global markets. Lets see who blinks first!
It is certain that there is correction lurking in the dark, and suddenly it will spring a surprise on all of us. I have to admit that this forthcoming correction will be quite serious. In absolute terms I will venture to say that the corrective wave will wipe off about 1500 points from Nifty. If Nifty can climb to about 5500 in the current run up as predicted in my 8th November post (http://archana-archdeb.blogspot.com/2009/11/sensex-and-nifty-expected-movement.html), then the correction can make Nifty trade at 4000 level. That is how serious the anticipated correction can be!! No wonder the market participants are getting so easily spooked by every shred of negative news.

Coming down to brass tacks, we need to apply caution after Dow reaches 10500. Similarly in Indian markets we have to watch out for the selling zone between 5320 and 5580 in Nifty, after Nifty crosses 5182.