The calm before the storm!

Please forgive me for sounding so pessimistic in the title, yet, however hard I try, I cant seem to write any optimistic column for bulls! I am quite bearish about the days to come partly because of the status quo of the US economy and partly because of the current state of affairs of our own economy. Freddie Mac and Fannie Mae are on the verge of bankruptcy and looking for the Fed's intervention to pump liquidity. Only time will tell what's going to be Fed's action. We need JP Morgan or another biggie in the picture if events turn the two ill-fated mortgage firms into facsimilies of 'Bear sterns'!

While the US stock markets in recent past or the past one month, to be precise, seems decent and some heavily optimistic souls started singing 'the-worst-is-over' and 'we-had-a-mid-term-bottom' songs, the reality seems to be apathetic to these souls' musings. The truth is that the current credit crunch due to the sub-prime mortgage crisis has resulted in write-offs close to 500 billion $. Some analysts expect that the total write-offs would be between 1 trillion $ and 2 trillion $ in the end. The intensity of the current crisis can be understood if the greatest philosophical speculator of the financial markets of our time, George Soros, believes that this is the worst crisis in US next to "the great depression" of 1929.

One of my close relatives was bitten by the stock market bug and asked my suggestion on whether he should invest now as the market has 'bottomed out'. I asked him what he meant by that - bottoming out. He replied that he just meant that the worst has already happened and he wants to jump in and stay invested for a long time. Apparently, his enthusiasm has been created by the media and the punter prototypes. I wonder if there would be any buy-n-hold investors in the current market without electronic media in the picture! I can still see analysts on CNBC predicting the stocks' movement for the next 6 - 12 months when the near future is not clear enough!

I am being reminded of the classical adage of the financial markets - "Bulls make money. Bears make money. But, pigs get slaughtered" and the lazy 'investors' who are trying to bottom fish now are the pigs!

Nifty outlook

Is the worst over? thats a million dollar question! Atleast the 50-stock index has found a short term bottom at around 3800 levels. This level is significant because it is close to 62.8 % of 6287, the highest closing of Nifty. The ratio 61.8% is called the golden mean and the most important of all Fibonaci ratios with respect to retracements in the financial markets. For all the optimistic souls in the market, it is a good news that Nifty did nt breach this level on a closing basis. Shortly after Nifty bottomed out at this level, the much awaited bear market rally has started. The market saw olympic sized gains and bounced back to the current levels of 4500 in just two weeks.

It could be seen that Nifty had broken the down-trend line and headed towards reaching the 200-EMA which is currently around 4737. The rally may continue till Nifty reaches this crucial resistance and may lose steam at around 4750.

Quick peak into the latest developments in tech stocks

I have taken a long break from blogging as well as trading! However, I was watching the market action everyday which is quite interesting. when was the last time it was uninteresting? - u might ask as well. And the answer is - I dont remember :)

In an earlier post, I have written about how well the IT scrips are performing but, expressed apprehensions about the 'sustenance' part of it! Well, my fears turned out to be true, and the IT index tanked along with the broader index shortly thereafter!

The top loser among the index stocks (IT sector) is Satyam. I have seen noticed a huge distribution of the stock and some manipulative action in the price 'run-up' and have mentioned the same during my previous posts (check out my previous post - "Marking up..!"). Well, the inevitable has happened. The stock tanked from highs of 540/- to around 380/- and currently trading at 409/-.