Thought for the day
"The whole difference between construction and
creation is exactly this: that a thing constructed can only be loved after it
is constructed; but a thing created is loved before it exists."
-
Charles Dickens (English, 1812-1870)
Word for the day
Canard (n)
An unfounded, false, or fabricated report or story.
(Source: Dictionary.com)
Teaser for the day
Over to Patna, via Perth.
Till
it happens, I'm staying put
Analyzing the current market trends I get few signals that
suggest that a major correction (10% or more) though not imminent is certainly
on its way.
I say not imminent, because, the sectors that could have caused
a slump have already corrected sharply.
From their recent highs (which incidentally happen to be 52w
high levels also) CNX Metal Index is down ~30%, CNX Energy Index is down ~20%,
CNX Realty Index is down ~25% and CNX PSU Bank Index is down ~18%. These
sectors are representative of the poor demand environment, elevated stress in
the financial system, global deflationary conditions and poor risk appetite.
Besides, The implied volatility of Indian equities, as
represented by India VIX, has almost doubled in past couple of months, with
material pick up in option volumes. The cash volumes though remain to their
yearly average.
Going by the current trends, a further correction of 10% in the
mentioned sectors may cause not more than 3-4% correction in benchmark indices.
To the contrary, in strict technical terms, these sectors in fact appear deeply
oversold and ready for a bounce back.
It would therefore be not unreasonable to say that the
technically market is close to bottom and may stage a traditional pre-budget
rally in next two weeks. The traders may however would need to keep a close
watch on the development in Europe for any sudden shock.
I also feel that a deeper and more meaningful correction is on
its way and may occur in historically weak market period of May and June. I say
so for five simple reasons.
(a) The number of large
daily movement in benchmark indices on closing as well as intraday basis has
increased substantially in past three months.
(Please note large inter/intraday movements of 3-5% preceded the
1991-1992, 2000-2001, 2007-2009 market collapse.)
(b) There are clear
category preferences visible in investors' activities along with unreasonably
higher valuation in preferred categories. Normally a sign of bubble in the
market.
(c) Policy focus
is driven by market and market is obsessed with policy focus. Usually this
harmony of market and policy is unsustainable - because it leads to
misallocation of resources and higher volatility due to political events.
(d) Lower interest rates
are driving retail investors to equities. Traditionally a sign of market
peaking.
(e) US rate hike
discussion will intensify in April-May period causing accelerated reversal in USD
carry trade.
I will be happiest person on this earth to be proven thoroughly
wrong on this count. But till it happens, I shall hold this view.
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