Tuesday, July 1, 2008

Blame it on Crude Prices

This is a bear market in full form. The Nifty closed below 4000, today, at 3896.75 to be exact, a 15 month low. The Index was down 3.56%.
Technical Analysis teaches us that new highs should be bought, while new lows should be sold. As the Nifty keeps on making new lows, selling opportunities arise. Now, the last of these sales will be a losing trade. This will happen when the Nifty begins its up move after making a short term low. A loss in a short position will be the first sign that the short term trend is changing to up.
On CNBC today morning, Udayan Mukherjee gave an excellent presentation of the excuses given by analysts when the markets do not behave according to their wishes. Instead of accepting that the market is supreme, the analyst provides some reason why the market did not do what the analysts said it will do. During the bull market the reason why stock prices were going up was "Liquidity". For the Technical Trader like me the reason was: Bull markets will see higher prices as the trend is UP. But, for the fundamental analyst, this would mean that the market knew more. So,the reason became "Liquidity". Now, as the market plunges down, day after day, the reason is: Crude Prices. The analyst tells us: everything would have been fine but for higher crude prices. Blame everything on crude. India is facing political uncertainty - because of higher crude. World markets are falling - due to higher crude prices. The sub prime crisis - thanks to higher crude. Real estate stocks in India have come to 25% of their highs - blame it on crude prices. The fact is that crude prices are just a small part of the bear market. Markets are falling because there are more sellers than buyers.