The Blood bath on the street has rejuvenated the chances of Double dip recessions, the last bloodbath on street was due the failure of the Banking system, this time around we have another reason for the plunge ‘ fear of Sovereign Debt crisis in Eurozone’.
Now today’s (19’th May 2010) fall was purely due to tinkering with the free markets, history has proved time & again, banning of short selling has never helped in the past (Academic Study), but even regulators as experienced as SEC have failed to understand that short selling is a simple tool to avoid asset bubble formation, still we have politicians with their own whims & fancies & they expect the markets to work according to them. Last week we started on a good note but as expected Germany’s Chancellor’s comments made its ending weak, markets rejoiced on 11’th of May on the news that EU and IMF agreed to act as fairy godmother and pay a $1 trillion emergency-bailout package to stem the sovereign-debt crisis. Sounds good but I have my doubts that we will come out of the tunnel unscratched, & I have my reasons to believe so:-
1) 1)The Bullish pattern in the Fear Index: - The INDIA VIX index , many call it the fear index is trading well above its 15 day moving average. Thus indicating the fact that volatility is the only reality. CBOE VIX is also trading well above its 200dma & staying there.
The very fact gold is able to close above $1200per ounce on a consistent basis, indicates the aversion of risk from EM’s, Currency , Crude & Commodities ( Non precious).
3)No takers for Euro :-
The Euro index has seen a freefall & has also breached the lows it had touched after the Lehman Bros. crash. It has breached a strong support of 123-125, still people are feeling the good old dollars are safest currency to stay in.
1) 4)China Commodity Scare:-
I I am scared of China’s growth & fear that its insatiable thirst for Natural resources could lead to
A bubble formation, which if burst’s it could create a catastrophic scenario.
So if Money is not parked in EM’s, Commodities, Eurozone, Equities in developed markets, then Gold seem to be the most likely option. So its safe to assume that 2007 high’s of 21K on sensex is still a distant dream, but a possibility if we see the so called as ‘ Decoupling Theory ‘ coming true due to good monsoons, but I personally expect Nifty to first go to 4600 levels & then 6200.
PS:- Many facts & figures are taken from Mr. Deepak Singh’s Blog. ‘ State of the Market’, Deepak is a vetran technical analyst, and my role model.
