Share Bazaar News India

We keep using the word capitulation, but this afternoon the scary part is the way largecaps are cracking, especially the ones that attempted a little bit of a pullback over the last couple of days.

Largecaps take the hardest beating

Overall the global mood is bad and stocks are falling. The stocks that have fallen, power and infrastructure have just started a pullback after being hammered for the last couple of months. L&T bounced back to Rs 3,100 and suddenly it's given back most of those gains. Once again it is very disconcerting, because some of the stocks that are bouncing back, the bounce backs don't last more than a day or two. Even those sectors, which seemed like oversold sectors are actually going back and breaking their lows.

Today’s largecap action is very distressing. On one hand metals, which because of yesterday’s newsflow are cracking, on the other hand the attempted pullbacks from many of the sectors have actually been dealt with fairly crippling blows.

The Nifty is at 4,650 in less than 48 hours; almost at a retest of the lows of 4,620 of yesterday, when it seemed like a lot of water had passed under the bridge after that 4,620 bounced back to more than 5,000. This is going to be a triple test of that January low. We went there in January, we retested it and bounced from there and two days after that retest, we are retesting it again because we are at 15,400 and that is pretty much 100-150 points away from that January low retest.

So the frequency with which markets are going down and retesting lows and seeking even lower levels for many individual stocks is extremely disconcerting. It is further tearing the fabric of sentiment, which is already in shreds, but with every failed attempt in an upmove, the sentiment probably gets even more into a shell.

Where's the bottom?

It is difficult to talk about a bottom in this kind of a scenario. Sure, from time-to-time, one will see this because of the intensity of the momentum in every fall. Just look at what happened today in global markets. Yesterday, most markets were up 2-3% or even the day before - it all looked very constructive.

There was talk about a bottom being in place and today the ferocity of the falls across the global markets is 3-4% effortlessly. Indices are tanking that much, so because of the intensity of the downward pressure or momentum, every two or three days, there will be fairly oversold markets from time-to-time and people getting overly bearish at those low levels. Then there will be those short covering bounces like yesterday. But people are confusing those with bottoms because everybody wants to see a bottom in place.

That desire to see a bottom is clouding opinion for a lot of people. It is a mistake to jump at every small bounceback and say - okay, we have got a bottom in place because people said that at 5,000 and it did not hold. People said that at 4,620 and we are back there once again - so these kind of trading calls based on certain levels isn't working in this market condition at all.

The situation is global and probably has a local element to it right now. That mess has to get cleared out to revive sentiment, revive liquidity and then we will probably see a bottom in place. But before that just to pick a level from the top of your hat and say - okay, I think this is the level for pain in the market and no more, is being quite foolish and very hopeful.

Problems local + global

The term 'local' sums up the problem situation for us. Nothing seems good; everything seems bad at this point in time, so when the bottom happens, it will happen when there is utter despair and gloom. The global situation or the unfolding local situation, all the numbers coming out, economic and earnings led, are not indicating that one can take a call 3-6 months down the line and say things are going to get better with some degree of certainty.

Two days back there was a 4% rally in the midcap index, they looked quite constructive yesterday morning as well and suddenly, last afternoon, some like ISPAT fell. Then this morning there was an 8%-10% fall in the liquid midcaps. The midcap index is down 4%-4.5%. Is that suggesting to you that sentiment or momentum or participation has improved to an extent, where a durable rally is in the offing? I don’t think so, we are at best in a volatile rangebound situation, the nose is still turning down

Short covering - the best strategy?

The one store the market tends to clutch on to is short covering. In the past few days it has been a wiser move or at least the more profitable one to short the rally. At 5,000 a lot of people must have opened up shorts because they did not believe that the market would go and stay above 5,000 convincingly.

That short trade must have got taken yesterday early in the morning; already you are staring at 4,650, so you have got a 6%-7% move in just about a day and a half, which is big. In two days 6.5% even for a Nifty trader that too a leverage futures trade is a big amount of gain to take. So people will take that profit and because of that profit taking, you could see the market bouncing back periodically.

Yesterday FIIs covered about 1,400 crore of the Nifty futures shorts, where did that lead the market? Periodically there will be bounce backs, but with the markets current frame of mind, short covering cannot be such a big trigger to take the market beyond very important levels and keep it floating above those levels.

Only when a couple of billion dollars of cash based buying is seen in the system, preferably from the FIIs, then the market will recover. Until that happens, predicting a bottom or saying 15 P/E is very attractive and therefore the market should not fall too much more from here or any more from here, is more wishful thinking than conviction.

Source: Moneycontrol.com