Dow Jones In Belligerent Mood - Shorts Trapped

Of late there has been an air of uncertainty hanging in global equity markets. Every moment throws up diverging views and news, making life difficult for pure Bulls or staunch Bears. This was evident from high volatility witnessed in global markets this past week. And in the middle of such environ, Dow Jones yesterday surprised all Bears with a belligerent bull run.

During the course of the entire trading session yesterday, bulls took a firm grip on proceedings in US equity markets. Never once did the bulls show any nervousness and simply kept on accelerated buying. Day traders in the Bear Camp would have felt thoroughly disgusted with one way traffic in US markets on 05 Nov 2009. And traders, who have positional shorts, must be sweating profusely by now. Reason : if in today's trade Dow crosses 10160 then it is curtains for traders on the short side. Shorts will have to be covered in all promptness because US markets will then spike up. With shorts scampering for cover, Dow will gallop towards 10360 and beyond in quick trot.

Now that we understand the present plight and apprehension of positional bears in US markets, let us examine the reasons for absence of volatility in last trading session. Few of the important triggers for such a strong bullish demeanor of US markets are listed below:-

• Jobless claims had declined to their lowest levels in ten months.
• Productivity surged to 9.5% last quarter, which turned out to be much better than street expectation of 6.5%.
• Cisco systems delivered strong positive results.

If you closely examine the strong drivers of yesterday's US markets surge, it is evident that the reasons are not so powerful that Dow has to notch up 200 plus points and close above the psychologically important level of 10000. It is not about just gaining 200 points that is worrying the Bears, it also the manner in which Dow accomplished the same. It was as if with utter disdain that Dow trundled northwards, vanquishing all attempts to pull it down. Such imperiously confident strides by Bulls foretell bigger moves in coming trading sessions. No wonder the shorts have to hang on to the slender thread of prayers, fervently hoping against hopes.

Why Indian Markets Surged Strongly - A Holistic View

Indian stock markets on 04 Nov 2009 - a stellar performance by any standards!! Today's performance in Indian bourses has so far been the best amongst Asian and European markets. I hope this performance is bettered by US markets in trade today, which will provide fodder for further exceptionally good rally tomorrow. That is all part of hoping, but first let us holistically analyse the reasons for Indian equity markets' strong bullish behaviour in today's trade.

Some very strong reasons for fierce snap back of Indian equity markets are listed below:-

• Union Finance Minister, Pranab Mukherjee came out strongly to assert that he is not contemplating withdrawal of stimulus package as of now. This dispelled a big fear out of the minds of investors.
• Deputy Chairman of Planning Commission, Montek Singh Ahluwalia reassured that India was ready to absorb the surge in foreign investment flows and in fact welcomed the same. In other words, sharp surge in foreign investments into India will not meet entry barriers as was the case in past. This was seen by FIIs as a paradigm shift from hawkish stance of India in dealing with excessive foreign investments. And this was given a thumbs up by market.
• With Justice Raveendran of Supreme Court recusing himself from three-judge bench hearing a high profile legal battle between billionaire Ambani brothers, the stage was set for much delayed verdict in the case. Justice Raveendran cited potential conflict of interest before withdrawing from the bench. This means a new bench has to be constituted and hearing has to begin from the very beginning. Reliance Industries benefits from the case becoming a long drawn affair. This news was cheered by traders who bought Reliance Industries with gay abandon and the scrip rose 5.2% in today's trade. Can the broader market then stay away from exhibiting bullish sentiments? The answer is an obvious 'No'.
• Finance Minister, Pranab Mukherjee reiterated that there will be many more disinvestments in state owned firms. “We are aiming at stake sales in public-sector undertakings (PSUs) that have less than 10% public holding,” he said. “A few more PSUs have been identified for disinvestment.” Those words sounded very sweet to the ears of traders and they demonstrated their joy by going on a buying spree.

Besides all that we discussed above, there were technical reasons for the bounce in Indian markets. Those scrips which got the maximum drubbing in trade yesterday rebounded back today by almost the same percentage. But volume in today's trade was nothing to write home about. That means there were aggressive shorts created yesterday, and with general bullish sentiments prevailing today in global markets, the shorts were progressively covered up. And of course there was Institutional buying across the board. Hope the same continues into next few trading sessions also. Happy trading!!

Dow Jones Displays Character - Closes Flat

Big relief! Dow Jones in yesterday's trading session closed flat at 9771.91, only 17.53 points down from previous day's close. I mention this as relief because the buzz on the street was that there will be bloodbath on Wall Street. Some voices claimed that it is this anticipation which led to a sharp fall in Indian markets as also in all other Asian markets except China. Moreover the European markets also traded as if there was no tomorrow, red being the favourite colour among all markets there. With all that at the backdrop, you would now appreciate why I expressed relief at Dow closing flat.

On 02 Nov 2009 Dow Jones had showed its hand in moving northwards in short term. I had mentioned that as leadership for rest of the global markets in my last post. For quick reference click the link here- http://archana-archdeb.blogspot.com/2009/11/global-stock-markets-dow-comes-to.html

Leadership that Dow exhibited was to no avail. No global market was ready to follow Dow Jones' example. China was an exception, but then China always plays the market on its own terms - based on its economy's performance. But we were discussing Dow and its tenacity in holding on to sanity against global sell offs. The other way around is still not happening!!

But to be candid I must admit that Dow's strength yesterday had lot to do with some important events that took place. Take a look :-

• Warren Buffet's Berkshire Hathaway bought the railroad company Burlington Northern Santa Fe Corp in a mega-deal of $44 billion. This signals that Warren Buffet is betting big on revival of American economy. In his own words Warren Buffet described the deal as "It's an all-in wager on the economic future of the United States". With strong American revival there will be increased demand for power and Berkshire owns coal based power company MidAmerican Energy. This company will require coal to be hauled over long distances. That is also where acquisition of a railroad company comes into play, if you get the bigger picture. But in all intricate calculations, US economy surging ahead is what Warren Buffet is betting his last penny on. That is certainly good news for global markets, considering how coupled we all are!
  
• Experts expressed their considered opinion that Fed is not likely to hike any interest rates in its November meet. That acted as firm anchor for Dow in trade yesterday.

The salutary effect of Dow showing strength will be felt today across global markets. At the time of writing this post, all Asian markets were trading in positive territory. Indian markets have also opened in green, the colour most elusive for the last eleven trading sessions!!

Global Stock Markets - Dow Comes To Rescue

Look to the West! Dow Jones has finally made up its mind to temporarily halt downward slide of global markets. In trading yesterday Dow could gain a decent 76 points to close at 9789. That will send Asian markets to spiral upwards today, leaving behind all apprehensions of yesterday. Wonder when will these Asian markets have their own strength of conviction in their respective economies! When will they stop looking to the west for day-to-day cue?

Be that as it may, the good news is that Dow has yo-yoed back to green territory in its last trading session. But in initial trade it zoomed 145 points higher than previous close, on the back of some good manufacturing numbers. To be precise the ISM index rose to 55.7% in October, up from 52.6% in September. This is also its highest reading since April 2006 which was cheered so merrily by the street that it seemed as if Dow was determined to break some kind of record in single-day gains. If you ask me, personally I was of the opinion that Dow was properly geared to gain at least 250 points yesterday. That's how it seemed in early trade on 02 Nov 2009. But alas!

By midday one found Dow languishing 35 points down, having given up all of its 145 points gain. That in effect was an intra-day loss of 180 points from its high. What spooked Dow were the Financials, Tech and Energy stocks. Investors got so nervous that all good news and reassuring signs of recovery from manufacturing data were brushed under the carpet and selling again took center-stage.

However Dow did recover some of its lost ground and thankfully so for health of Asian markets today. The recovery was witnessed both in Financials and Tech stocks. Somehow I fail to understand as to how anyone can possibly be selling Tech stocks like Apple at this point in time. With Christmas around the corner, Apple is likely to have a strong sales season of Mac computers and iPhones. But then that's how markets are!

As for Financials, I guess US market participants did not like a key Federal Reserve official saying all that he said about executive pay in large financial institutions. I have a hunch that big boys on the street didn't like that one single bit. How can you even hint that a substantial portion of executives' pay (incentive-compensation) in big banks should be deferred over a multi-year period? So what if they have turned around with massive help from tax-payers' money!!

But somehow Dow in late trade yesterday made a nice effort to claw back into green. That is leadership, because now the Asian markets will follow suit. Indian markets should open with a gap up and sustain their rally today.

Dow Jones Bleeds - Will Nifty Arrest The Global Downtrend?

Dow Jones in its last trading session made no attempt to recover from low and kept its steady southwards journey in trade yesterday. It looked almost like a surrender of the bulls to bear hug. That does not augur well for global markets. What spooked US markets which resulted in Dow closing 120 points in red on 28 Oct 2009? Nothing out of the way. Just the same old stuff, same old conditions, same old story. It seems global investors are pulling out money from equity markets and parking it in Dollars. Hence increased demand for dollar and that's how you can see the Greenback rise against all currencies except yen. But wasn't it just the opposite situation last week? There was unambiguous opinion across the planet that dollar was losing its sheen and was likely to depreciate against all major currencies. Well news flows as per market behaviour and not the other way round.

The long and short of all this is that Asian markets are trading deep in red today ie 29 Oct 2009. That sends shivers down the collective spine of bulls in India. With bulls quivering, bears will naturally seize control. That is how the situation would seem to any of us for today's trade. Moreover its expiry day for derivatives today and hence there will be lot of nervousness on the part of traders. However it seems to me that Indian markets will arrest the downward trend in global equities by showing the way up, starting today. News will follow later to justify the move and that is why I can't put a finger to any reason at the moment. All I can say is that the Elliot Wave calculations suggest an upward move from here in Nifty and Sensex. Remember we still have an upside Nifty target to reach at 5280 before this year ends or maybe just at the beginning of New Year.

Whatever be the case it will be nice if you can pick up any or some of the shares suggested below:-

• Punjlloyd buy at 180/185 for a target of 225 in short term.
• Canara Bank buy at 324/327 for a target of 357 in short term.
• DCHL buy at 45/47 for a target of 62 in short term.
• Dena Bank buy at 61/63 for target of 70 in short term.
• Dr Reddy buy at 950 for target of 1050 in two weeks.
• Voltas buy at 141/144 for target of 168 in two weeks
• Crompton Greaves buy between 340 and 350 for a target of 425 in short term.
• IDBI buy at 113/115 for a target of 128 in short term.
• IOB buy at 113/114 for a target of 126 in short term.