Thursday, July 3, 2008

Friday is Inflation Day

For the past few weeks, the stock market has been watching Friday's inflation numbers closely. Suddenly, inflation seems to have become to Indian markets, what the Fed is to the US markets.
For tomorrow, CNBC reports that the consensus number is 11.44%. . These numbers are reported at 11:45 AM. For day traders, it is wise to have zero positions when the numbers are flashed over CNBC.
For the US, Bloomberg starts off with this news item:
U.S. Economy: Employers Cut Payrolls for Sixth Straight Month
This remains another sign of the US under coming under recession.
The Nifty made a pivot low on Wednesday, at 3850. If this low breaks, we again have a continuation of the lower low pattern, suggesting more weakness ahead. As the Index closed at 3920, it is within striking distance of these lows. If by chance the Nifty does manage to move up, keeping these lows intact, then a change in trend will be assumed if the Index closes above 4350. Between 3850 and 4350, trading opportunities are limited since the market may remain volatile and uncertain.
Technical traders should look at the weekly chart for the Nifty. The Bull market saw the Nifty move up in a straight line advance from 2500 to 3600 in 2006. Week after week, the Index went up, with no correction or dip inbetween. Such straight line advances create a vacuum. When the market begins to move down, it encounters no significant support since such support was not created on the way up. This is the worry if the Nifty were to break below the 3600 - 3700 zone. We could be looking at a free fall.
If 3850 holds, we may be looking at a period of choppy market movment as Q1 results start coming in from July 7 onwards.
Gains made in the market in coming days will not signal the start of a bull market. The bear market is barely six months old. It is probably not over. Then, bull markets start after a prolonged period of base building, probably months or even years. Therefore, rallies should be used for short term trading or even selling at higher levels.