STRATEGY INPUTS FOR THE DAY
Topsy turvy Tuesday
Stoop and you'll be stepped on; stand tall and you'll be shot at.
A swinging day lies in store and bulls and bears may not know what to do. After having been at the receiving end of the bear onslaught for the past several days, the bulls fought back on Friday and followed that up with another stellar performance on Monday. What is heartening about the advance is that the rally was more broad based. Volumes too picked up. Also, FIIs were net buyers, albeit only marginally while local funds continued their buying spree. The big question on everybody's minds is whether the bulls can sustain this momentum and take the key indices to previous lifetime peak or anywhere near it?
Today, we expect a flat to lower opening on the back of the overnight losses in US shares and some weakness in Asian markets. Intra-day gyrations are here to stay. Be careful while buying into these spurts if you cannot hold on to your position for long. As always, long-term investors need not worry as yet.
Given the uncertainty over the US economy and its global ramifications, one should still be a little bit cautious. A few days gains can easily be wiped out if Wall Street goes through another bad day. But, that's still conjecture. The best way to tackle the current volatility is to take each day as it comes rather than try and look too much ahead.
The long-term India story remains intact, but whether we can completely decouple from the world is debatable. In any case, we seem to have two different stories going on - one is the India growth story and one is the India market story. One has to be able to distinguish between the two to protect one's investments against wild fluctuations in the stock market.
FIIs were net buyers of Rs1.64bn (provisional) in the cash segment on Monday. Domestic Institutions were also net buyers of Rs7.32bn. In the F&O segment, foreign funds were net buyers of Rs20.13bn.
Most Asian markets are trading down this morning. The Nikkei in Tokyo was down 171 points at 13,688 while the Hang Seng in Hong Kong dropped 471 points to 24,560. The Kospi in Seoul was flat at 1688 while the Straits Times in Singapore fell by 32 points to 3044 and the Shanghai Composite in China shed 91 points to 4580.
The MSCI Asia Pacific Index lost 1% to 146.80 at 11:16 a.m. in Tokyo, halting a three-day, 5% rally that lifted the benchmark yesterday to the highest since Jan. 15. The S&P/ASX 200 Index declined 1.2% in Australia, where the central bank is expected to raise interest rates to an 11-year high today. Benchmarks retreated in all other markets open for trading. Taiwan is closed for a holiday.
US stocks slumped on Monday, following last week's big rally, as investors considered analyst downgrades of the financial sector and the looming threat of a recession. Technology shares gave back some of their strong gains on Friday. Concerns that consumer spending will slow also dragged down retailers.
Analysts told investors to sell American Express, Wells Fargo and Wachovia Corp. on concern that a recession will worsen defaults among consumers. American Express slumped after UBS said US unemployment will rise, reducing profits. Wells Fargo and Wachovia, the fourth- and fifth-largest US banks, dropped the most in seven years after Merrill Lynch said loan losses may increase.
The Standard & Poor's 500 Index fell 14.6 points, or 1.1%, to 1,380.82 after rallying 4.9% last week. The Dow Jones Industrial Average decreased 108.03 points, or 0.9%, to 12,635.16. The Nasdaq Composite Index retreated 30.51 points, or 1.3%, to 2,382.85.
Market breadth was negative. Almost seven stocks declined for every four that advanced on the New York Stock Exchange.
Treasury prices slumped, raising the corresponding yields. The dollar was mixed versus other major currencies. US light crude oil for March delivery rose $1.06 to settle at $90.02 a barrel on the New York Mercantile Exchange. COMEX gold for April delivery fell $4.10 to $909.40 an ounce.
In economic news, the December factory orders index rose more than expected. Orders rose 2.3%, the government reported, topping forecasts for a rise of 2%. Orders rose 1.7% in November. However, the report did little to alleviate concerns about the economic slowdown following surprisingly weak jobs report.
After the close, News Corp. reported higher quarterly earnings that met estimates. Tuesday's lone economic report is the ISM's January reading on the services sector of the economy.
European stocks closed slightly higher. The pan-European Dow Jones Stoxx 600 index closed up 0.2% at 329.13, with industrials in the lead amid a mix of analyst moves, earnings and bargain hunting.
Of national indexes, the German DAX 30 index ended 0.5% higher at 7,000.49, the French CAC-40 index dipped 0.1% to 4,973.64 and the UK's FTSE 100 index closed down 0.1% at 6,026.20.
Among the emerging markets, the RTS index in Russia climbed 2.2% to 2012 while the ISE National-30 index in Turkey jumped 2.9% to 57,329. Markets in Brazil and Mexico were shut for holidays.