For the past many months, we have been waiting for Nifty to give a deep correction, in line with our perception of the economy. But that has not happened.
Initially, we thought that distribution may be taking an extraordinarily long time, in view of the scare caused by the crash in 2008. Perhaps that was true as scared investors did not seem to be wanting to take positions, especially at high levels. But this seems no longer true.
Analysis in F&O segment shows that the positions in index are about two times what they were in Jan 2008, just before the crash. Enough to raise a red flag of caution.
We may or may not crash yet. But we must be cautious in investing.
Friday, September 3, 2010
Are Markets manipulated?
Many believe that markets are manipulated. In fact, many investors do talk in terms such as, "this stock has gone up because an operator is active in it". Such talks seem to suggest that the stock/market is indeed manipulated.
So, is the market manipulated? My answer is "It depends". It depends on what is your definition of manipulation.
Lets say, a person takes a long position in the index future assuming that the market would go up. But, the market starts moving down a bit. The options before this person would seem limited to either booking a loss or hedging his position. But what if this person has lots of funds at his disposal, much much more than that in the hands of most people? He now has another option. He starts buying a index heavy weight. This would probably cause the price of the index heavyweight to rise and in turn lift the index. Would that be called manipulation? Surely, there is an attempt to manipulate the index up, but surely this cannot be classified as "manipulation" with a negative connotation attached.
It is true that a small number of high net worth individuals contribute to most of the action in the market. But this is true everywhere in the world. They cannot "manipulate" a market until and unless they act together. In organised markets, such a coordinated act is hardly possible, especially with regulators around. What happens simply is that people are part of a herd. Herd action itself leads to spikes and sharp unexplained dips in the market. So blame the strange market moves on herd mentality and not manipulation.
So, is the market manipulated? My answer is "It depends". It depends on what is your definition of manipulation.
Lets say, a person takes a long position in the index future assuming that the market would go up. But, the market starts moving down a bit. The options before this person would seem limited to either booking a loss or hedging his position. But what if this person has lots of funds at his disposal, much much more than that in the hands of most people? He now has another option. He starts buying a index heavy weight. This would probably cause the price of the index heavyweight to rise and in turn lift the index. Would that be called manipulation? Surely, there is an attempt to manipulate the index up, but surely this cannot be classified as "manipulation" with a negative connotation attached.
It is true that a small number of high net worth individuals contribute to most of the action in the market. But this is true everywhere in the world. They cannot "manipulate" a market until and unless they act together. In organised markets, such a coordinated act is hardly possible, especially with regulators around. What happens simply is that people are part of a herd. Herd action itself leads to spikes and sharp unexplained dips in the market. So blame the strange market moves on herd mentality and not manipulation.
Thursday, July 15, 2010
Why Nifty should fall !
There are many reasons why i feel Nifty shall fall. To bring out all of them would be difficult, so i give one simple argument. (Of course, i can be wrong).
1. March 2009, we hit 2539. (Bottom)
2. Just two and a half months later we hit 4693 (TOP).
( thanks to a huge Gap up opening post election result which saw market gain 17% in a single day. That caught all of us by surprise for it was unprecedented).
3. The correction to the rise took us to 3919. (bottom)
4. We then moved to 5182. (Top)
5. Next we fell to 4538. (bottom)
6. We then moved to 5311. (Top)
7. We corrected then to 4675 (Bottom)
8. We then moved to 5400 (Top)
9. We corrected to 4786. (bottom)
10. Now we have moved to 5453. (Assumed to be a top for the time being)
The length of rally and falls in points are as follows
Rally Fall
2154 774
1263 599
773 636
725 614
667 (assumed top)
Notice how each rally has become smaller and smaller, whereas the last three falls have been roughly 600 points each. Seems like a market loosing momentum.
Such a pattern is rare, especially in view of the extended time it has managed to keep itself up. To keep confusion alive, market is indeed so far making a higher top and a higher bottom ( a normal sign of bullishness).
There are of course many other reasons,but taking all the reasons in view, I would consider this market as downright dangerous and a fall most likely.
1. March 2009, we hit 2539. (Bottom)
2. Just two and a half months later we hit 4693 (TOP).
( thanks to a huge Gap up opening post election result which saw market gain 17% in a single day. That caught all of us by surprise for it was unprecedented).
3. The correction to the rise took us to 3919. (bottom)
4. We then moved to 5182. (Top)
5. Next we fell to 4538. (bottom)
6. We then moved to 5311. (Top)
7. We corrected then to 4675 (Bottom)
8. We then moved to 5400 (Top)
9. We corrected to 4786. (bottom)
10. Now we have moved to 5453. (Assumed to be a top for the time being)
The length of rally and falls in points are as follows
Rally Fall
2154 774
1263 599
773 636
725 614
667 (assumed top)
Notice how each rally has become smaller and smaller, whereas the last three falls have been roughly 600 points each. Seems like a market loosing momentum.
Such a pattern is rare, especially in view of the extended time it has managed to keep itself up. To keep confusion alive, market is indeed so far making a higher top and a higher bottom ( a normal sign of bullishness).
There are of course many other reasons,but taking all the reasons in view, I would consider this market as downright dangerous and a fall most likely.
Thursday, May 6, 2010
Dow falls hard - Due to Human error?
Dow closed 348 down. But in intraday trades the market hit 998 points down before recovering. Typical reaction was something must have gone wrong with the system. An explanation given is that there were technical glitches. Another story doing rounds is that a trader placed a huge sell order by mistake when he actually intended to put a huge buy order.
Really?
Wonder why do these glitches/error occur only on one side. Ever heard of a glitch causing markets to rise 1000 points in a day. Wonder whether last year's 17% rise in Nifty in a single day was due to human/system error!
Really?
Wonder why do these glitches/error occur only on one side. Ever heard of a glitch causing markets to rise 1000 points in a day. Wonder whether last year's 17% rise in Nifty in a single day was due to human/system error!
Sunday, January 31, 2010
India's housing bubble
Is India going to follow the western nations in building a housing bubble? I fear yes. Take a look at how distorted the market really is. Prices are really high, with the yield from the rentals really low.
Yesterday, i was in Delhi. My friend who is living in a rented house at Safdarjung Enclave area told me that he is paying a rent of Rs. 30,000/- per month. The house is a three storied one build on a plot of 200 yards. With some area left for the front lawn the covered area on each floor is probably about 150 yards or 1500 sq feet approx. According to him each floor would sell for about Rs. 2 crore. From what i know about property prices in Delhi, he is not far off the mark. So lets do some simple calculations.
The rent would be a mere Rs. 3,60,000/- per year. On an investment of Rs. 2 cr. the rent yield works out to be a mere 1.8%. Now why would anybody buy a flat for Rs. 2 crore for putting it on rent? Well the answer is obvious, it is not rent but property appreciation that would prompt such buys. The stark difference in the rentals and the property prices point to this fact. The rentals not having kept pace with the rise in property prices point to the fact that the demand for residential accommodation is not as much as being projected. The speculative demand can keep property prices high and keep them going higher, a sign of a bubble building up.
In the short term, the argument on demographics of the country and hence thus the likely rise of housing prices may work. How long will prices keep rising? I have no idea. It may be a week, a year, a decade or much much longer. But the crash will come. Probably it will not hurt us but our children. We need to be prepared and prepare our children for it.
Yesterday, i was in Delhi. My friend who is living in a rented house at Safdarjung Enclave area told me that he is paying a rent of Rs. 30,000/- per month. The house is a three storied one build on a plot of 200 yards. With some area left for the front lawn the covered area on each floor is probably about 150 yards or 1500 sq feet approx. According to him each floor would sell for about Rs. 2 crore. From what i know about property prices in Delhi, he is not far off the mark. So lets do some simple calculations.
The rent would be a mere Rs. 3,60,000/- per year. On an investment of Rs. 2 cr. the rent yield works out to be a mere 1.8%. Now why would anybody buy a flat for Rs. 2 crore for putting it on rent? Well the answer is obvious, it is not rent but property appreciation that would prompt such buys. The stark difference in the rentals and the property prices point to this fact. The rentals not having kept pace with the rise in property prices point to the fact that the demand for residential accommodation is not as much as being projected. The speculative demand can keep property prices high and keep them going higher, a sign of a bubble building up.
In the short term, the argument on demographics of the country and hence thus the likely rise of housing prices may work. How long will prices keep rising? I have no idea. It may be a week, a year, a decade or much much longer. But the crash will come. Probably it will not hurt us but our children. We need to be prepared and prepare our children for it.
Friday, January 29, 2010
US GDP growth 5.7% ?
IS US GDP really growing and has it really grown 5.7%? If indeed so, it must surely rank as one of the fastest growing economies in the world. Or is it something else? Have not had the time to dissect figures recently, so just linking an article i came across. Cannot vouch for the analysis in the article. However, considering the doubts i have on the figures is likely to represent what is wrong.
The link is
http://seekingalpha.com/article/185433-u-s-gdp-when-a-slower-decline-equals-growth?source=feed
The link is
http://seekingalpha.com/article/185433-u-s-gdp-when-a-slower-decline-equals-growth?source=feed
Friday, January 1, 2010
Optimism on economy
The stock markets worldwide continue to move up. Yet, nothing much has changed in the fundamentals of economies. Not much of the toxic assets that hit the economies have been written off. Whatever, "improvement" has happened is fueled by liquidity pumped in by governments. Some sense of optimism has returned about the economy. Yet it is this very sense of optimism without any fundamental backing that scares me. Something will give up one day and all the optimism shall soon turn to pessimism.
Have been waiting for the financial markets to fall again like a pack of cards. The wait has become a bit too stretched but i am convinced that markets across the world are likely to see much lower levels than the current levels in the coming months.
I shall continue to wait...
Have been waiting for the financial markets to fall again like a pack of cards. The wait has become a bit too stretched but i am convinced that markets across the world are likely to see much lower levels than the current levels in the coming months.
I shall continue to wait...
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