After a successful winding up of the August series on Thursday, Dalal Street carried on the celebrations into the weekend with Nifty closing at 4732, a 14 month high for the benchmark.
While the Nifty made a new high, the Sensex did not. The Sensex may follow in the foot steps of the Nifty this week and will need to close above the 16002 level to mark a new 2009 high.
While in terms of price charts the indices look well placed, there is an element of conflicting news from the oscillators. While the stock and index values have made a higher high, the oscillators are not in agreement. They have made a lower high.
This negative divergence is a matter of discomfort. Investors, therefore, while continuing to be invested will have to remain vigilant and are well advised to keep a foot in the door to make a quick exit, if indeed there is any problem later on.
While the going is good, lets take stock of where we are. The Sensex is up 98% from the March 2009 lows. This is a fantastic return by any means. Lets now turn the pages of history to see when we got this kind of returns. I looked at the calendar year returns and found that ever since the Sensex was formed in 1986, the highest return we have ever seen in a year was in 1991, when Sensex jumped 82% over the 1990 close. That was during the time when Harshad Mehta was the market jockey.
And here you have a 98% rise in six months. These are extra ordinary gains and should be protected by all means.
In the US too, the indices are doing well. The Dow Jones Industrial Average is up 46% from its March lows. In the entire 113 year history of the Dow, only six rebounds have been bigger and faster.
Interestingly, financials, that lead the markets down are the ones that are now pulling it up as well. But the buoyancy in the financial stocks seemed to have reached unsustainable levels. Consider this. Four financial stocks - Fanny, Freddy, BoFA and Citi accounted for 43% of the NYSE turnover on one of the trading days last week. For the month of August as a whole, AIG and the four aforesaid financial stocks accounted for 31% of the daily volumes.
The insiders are also selling in the US. In August, corporate insiders sold nearly 31 times as much stock as they bought. From last September through this past March, in the depths of the bear market, that ratio was just 2 is to 1. The long-term average is about 7 is to 1.
The people who run companies may not exactly know what the future holds for the over all markets, but they do know more about their own firms than outsiders do. If they are furiously selling now, how much eager should investors be to buy now?
The commodities, however, can still create opportunity for stocks. World raw sugar futures hit a 28-year high on Friday, when a market already supported by low supplies got a boost from bullish technical chart-based factors and strength from other commodities. The most-active October sugar contract rose 1.03 cents to 23.52 cents a pound on ICE Futures U.S. Copper closed at an 11 month high. Crude at $ 72.74 is still under leash, but if the $75 level is crossed, it can trigger a whole new buying in the upstream oil stocks.
Second reading of our GDP growth numbers for the April-June quarter will be released Monday. Analysts expect it to be altered to 6.20% as compared to the first reading of 5.8% growth. Chinese PMI will come Tuesday. On the same day we will have EU and UK sharing their PMI data along with our trade numbers. The mother of all data, the Non-Farm Pay Roll numbers , comes on Friday.
From a derivative perspective, things look better for the mid-caps than the large caps. While the going has been good after a smooth roll over, there could be hiccups going forward. We began the September series with 107 Cr shares in stock futures, which is the highest opening balance since January 2008.
This is in line with the general buoyancy for the mid-caps. Traders can continue to be long in the stocks, but will have to be nimble footed to make a quick exit, whenever the trouble erupts. Technically, as long as the Nifty does not close below the 4640 mark, the bulls can graze to their hearts content. Make hay while the sun shines and large stacks at that. |
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