HOLIDAY SHORTENED WEEK: LOW ON VOLUMES, HIGH ON VOLATILITY
This is the shortest trading week. Monday was Dussehra and Friday is Gandhi Jayanti, squeezed in between are the three working days of the week.
We ended the September series with a gain of 6.4%. This was more than double of 2.6% gains in August, but way below the average of 9.4% seen since March this year. The Nifty crossed the 5000 hump and closed above the mark for a just a day but abseiled to lower levels for acclimatization.
The open interest for the last series had reached to a high of Rs 1,22,000, just Rs 10,000 cr less than the all time high mark of Rs 1,32,000 seen in January 2008. While in terms of OI, things may have looked quite high, in fact they are no where near being dangerous.
Meanwhile, the economic data that had streamed in the US last week was not so encouraging as had been in the past few weeks. But the fresh set of mergers and acquisitions news on Monday has helped the Dow recover 80% of the losses seen last week.
Last week, existing Home Sales declined 2.7% month over month for August. They improved 3.4% above the August 2008 levels, as the national median existing-home price fell in August, down 12.5% from year ago levels. New Home Sales also disappointed, coming in at 0.7% gain from the prior month, about half of consensus expectations. Again, sales disappointments took place despite a record drop in prices. Median new house price dropped 9.5% in August from July, the biggest decrease since records began in 1963. New Home Sales were off 3.4% from a year earlier, as prices fell 12% from August 2008.
Tax Credit for First time home buyers ends in November. Seasonally also the coming few months see a decline in housing sales till about January, which then pick up during the summer.
The durable goods orders have started have slid as well in August. Crude inventories have gone up and there were several chinks in the commodity armour.
China celebrates the 60th anniversary of its Communist party on 1st October. The Chinese have an inherent motive to keep all sections of its populace happy to let this event pass off peacefully. After that there will be no compulsive reasons to keep the banks pumping money in the economy. As a result, the commodities could shed some gains.
In India, the data on the six core infrastructure industries for the month of August, came in better at 7.1%. That was way above the 1.8% growth for July. Since this data came in after close of business on Friday, it has not been factored in as yet.
Usually the market performance post Diwali is better than pre-Diwali. Of the 16 years under study since 1993, one month pre-Diwali returns in the Sensex have been positive in 7 years and negative in 9 years. Normalised returns, excluding the best and the worst year, have been 0.4% in the pre-Diwali returns.
The scenario changes for the better in the post-Diwali period. Of the 16 years under study, one month returns are positive in 12 of these years and negative in only four. Average normalized returns are 3.15%.
But this year on account of an early Diwali, it is bang in the middle of the result season. So, past performance is of no help. While the large caps may slide, the mid and small caps will continue to thrive. Among the sectors, Fertilisers are likely to do well and mid-cap Pharma should also join the fun of the big boys. This holiday shortened week may be low on volumes but is sure going to be high in volatility.
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