How would the Dow Jones Close today?

Two Major Economic data were released in the US today

1) Producer Price Index (PPI)

The PPI increased by 1.1% while the expectation was for an increase of mere 0.4%, while the core PPI which excludes volatile food and energy was up 0.2% and was as expected, but since the FED had said at its last meeting that ‘risk of downturn of economy is bigger while inflation although not showing signs of cooling down is likely to moderate over a period of time’ hence this is likely to be ignored by the Market participants over there.

2) Empire State Index

The Empire State Index put in a reading of + 0.6 from -22.2 in March, readings over 0 indicate growth while that below 0 indicate contraction. The Expectation was for -17 so it is a hefty increase beyond expectation. This data is likely to move the markets over there as the participants over there would like to believe that the worst of subprime is behind them and mild recession is likely to be the outcome.

While on the earning front Johnson & Johnson which is also a component of Dow Jones Index has reported a better than forecast earning, also it has raised it forecast for 2008 earnings.

As of writing this the Futures of Dow Jones were trading positive 60 points, looking at what happened until now closing looks likely to be in a positive territory.

Will Markets Break the Range?

As I had said in my earlier post http://niftywhatcanhappen.blogspot.com/2008/04/players-want-indices-to-stay-range.html The Nifty could not break 4800 and gave the opportunity to sell 4800 calls while hedging was done with 5000 call. But now one thing has changed in the global scenario, General Electric (the most conservative company while giving earnings guidance) results declared on Friday were a big disappointment, they could not even achieve what they had predicted and what had seen said was always in the pocket. Now most of the Asian markets reacted by breaking down by 2-4% on Monday, since our very own market was closed on Monday we were left out. So as I had said in my post that every fall towards 4620 is supported by the optimism that most markets are trading at there monthly highs, now that optimism might be broken down because some have posted biggest falls in a month. Since most Emerging markets Indices have broken down now the best case scenario would be too think 4800 or lower to be April F&O (24th April 2008) closing on the spot Nifty and act accordingly so 5000 put could be bought will 4800 put could be sold.

Are World Stock Markets Manipulated

I am pointing out some facts then you decide the answer yourself

The Bull run in most of the Equity Markets started in the 2nd quarter of 2003, now each of the markets have gone major upswings or downswings almost altogether lets see how

1) First my very own BSE Sensex
Sensex traded at 2924 on 25th April 2003, now it formed first major top at 6194 on 14th January 2004, and this top was almost equivalent to its 2000 top, now after correction the bottom was at 4505 on 17th May 2004, the breaking above the previous top was achieved on 30th November 2004. The sensex consolidated in a range of 6000 – 7000 from December 2004 to June 2005. Now the sensex went up to 8800 in Oct 2005 wherein it corrected up to 8000 in Oct 2005 itself. A big upward movement took the sensex towards 12676 in May 2006 almost 50% gains within 7 months. A steep correction saw the sensex drop to 8800 in June 2006. The sensex broke above the previous top in Oct 2006. Yet again the sensex consolidated in the range of 12500 – 14500 in the period between December 2006 to June 2006 with a steep fall in Feb 2007 (on subprime issues, which just started showing up) but immediately resuming uptrend. The sensex was just a catching distance away from 16K when subprime issues saw the world markets and hence the sensex drop up to 14K in July 2006, wherein Fed rate cuts saw most emerging markets move upwards with Sensex and hangseng being outperformers, sensex moved past 21K, but then US recession rather then a slowdown seemed more probable after first drop in hiring was reported in US jobs report and most emerging markets dropped heavily with hangseng and sensex yet again showing there out performance but this time on the bearish side.

2) Now let’s have a look at Brazil Index Bovespa
Bovespa formed its first major top in Jan 2004 at 24K which was near about 25% more than its 2000 high, now after correction the bottom was 18.5K in May 2004.The breaking above the previous top was achieved in November 2004, and then it consolidated in the range of 24K to 28K in period between Nov 2004 to Sep 2005. In May 2006 bovepsa too underwent a major correction which saw it dropping from 42K to around 32K in Jun 2006. It too broke above the previous top in November 2006, and also saw a steep fall in February 2007 and June 2007 which was related to subprime issue. Bovespa too gave handsome returns when Fed started to cut rates.

Now if we compare this two Indices we see that both of them formed their first major top in January 2004, after which both of them saw some sideways movement till November 2004, both of them show triangular pattern in there charts for a period between November 2004 to June 2005 both of them gave significant correction in May 2006. Bovespa outperformed sensex in the period between March 2007 to June 2007 and sensex was the leader in the period between August 2007 to January 2008. While Bovespa might have given more returns than sensex, it is the Indian currency which appreciated more against the Dollar then the Brazilian real.

Likewise if you see charts of most other markets including Dow Jones, Ftse, Hangseng, Strait Times, All Ordinances etc you will notice that while Bovepsa, Sensex, Mexico IPC, Jakarta Composite etc were rallying the Markets which were lagging behind were consolidating, it has hardly ever happened that this markets were rallying and the other ones were falling, they were just plain consolidating. Most Important aspect noticed is that hardly a single month could be found in last 5 years wherein while one market has given above 10% returns the other one depreciated by 10%. So there is hardly any month when a call option on certain Index has given good return the opposite Put option has given good returns on any other Index.

Players want Indices to stay range bound before results

The way we are trading for last 8 – 10 days it seems the Market players are getting skeptical as and when nifty reaches 4800 and above and every gap up opening is used as profit booking as fear of inflation, what the earning would be given the global slowdown, drop in IIP numbers, there seems to be fear that would the earning slow down significantly that the valuations would look overstretched. But on the other hand as and when the Nifty reaches 4620 the optimism takes over the reason could be the global markets are not breaking and most are even trading near about there monthly highs.

The best case scenario now would be to sell options rather than buy them, so as and when the nifty is close to 4600 level 4600 put could be sold but to protect yourself from any adverse move 4400 put could be bought, if this is not suitable then 4500 call could be bought along with 4400 put. Also as and when if nifty closes in nearby 4800 and above 4800 call could be sold while 5000 call could be bought in.

Now coming in to trade today, most of Asia is trading in red with 1 – 1.5% cut, exception being Hangseng which is for most of the day in green. The trade is quite difficult for today personally I am avoiding Intraday trade as of today.

Not much to write about

The Market might trade in a tight range with lots of volatility, better not to trade as of today.

Dow Jones Not Underperforming Emerging Markets

Let’s First Have a Look at Indian Sensex

Sensex touched the Figure of 1000 in July 1990

In July 1990 17.4 Indian Rupees Could Buy 1 Dollar

Now Suppose an US investor wants to buy 1 Sensex in 1990 he could buy 1 Sensex for 57.47 Dollars

Now Suppose He sells that 1 Sensex in 2008 at the Sensex top of 21206 and 39.2 Indian Rupees able to buy 1 dollar, he would get 541 Dollars

Now Lets have a look at Dow Jones

When Sensex touched a figure of 1000, Dow Jones was trading at around 3000

Now Suppose Indian Investor wants to buy 1 Dow Jones then he would require 52200 Rupees for the same.

Now if the Dow Jones is sold in 2008 at an all time high until now of 14297 when 39.2 Rupees can buy 1 Dollar, his returns are 560442

So in the Long term both the Indexes have given similar returns with the only difference being that since Indian Rupee depreciated against the Dollar hence the Indian Sensex moved more then the Dow Jones.

Also while the Dow Jones moved to 12000 in Jan 2000 from 4000 in Nov 1994 the Indian Sensex barley moved in the same period, while when the Sensex moved from 6000 in Jan 2000 to 21000 in Jan 2008 the Dow Jones was nearly stable in the same period.

Similarly if you have a look at the Emerging Markets like China, Brazil, Mexico, Korea, Indonesia, whose Indices have doubled or even quadrupled from their 2000 highs, you will see that there currencies have depreciated hugely against the dollar in the nineties and also they did not give a big upmove in the period between 1994 to 2000.

Monday Could be big day

Right Now at 2.58 pm as I am writing just 32 minutes from Market closing 4640, The Nifty might closein at 4620 and 4620 was the big support the bulls were taking uptil now. Today Friday is a important day for US market trading as US Jobs figures are going to be released today in the evening by 6pm India time. Now if the Jobs figures show bad news the US markets might drop sharply. Asian Markets (should I say just hangseng) which have not gone though bad patches inspite of US markets having bad days of lately can react by opening Gap down on monday which can cause a bad opening for us on Monday. Lots of 4500 puts have been written and the premium too is sufficeintly down compared to March series, hence 4600 put could be bought at near about 140, but since tommorow i.e Monday could be make or break day hence 4800 call or 5000 could be added as an hedge.

Would the Market sustain Rally?

Apologies for not writing for last two days, due to personal problems could not write for last two days. A Gap up opening of 4910 on the Nifty is probably on cards, a mild correction towards 4880 would be the place to go long, and worst case scenario can be 4860 on the Nifty. If the Nifty drops below 4750 it might not go past 4910 as of today. Way the Asian Markets are panning today might not be the day to use every bounce to sell. For Options I think 5000 Nifty Call could be bought in a range of 120 – 140 target could be 160 – 180 if Nifty moves past 4920.