Even a die-hard bear like me got tricked this time. The market looked ripe for a short rebound, I felt, before resuming its sharp move downward. All short-term indicators pointed to a temporary let up in selling.
We did not get that rebound. In an amazing flip, all stocks opened lower on Monday and headed straight down. The sensex closed 46 points lower on the first day. On Tuesday the market was closed. Wednesday saw another down day — 32 points loss in the sensex. Thursday ended with a loss of 19 points and Friday with 9 points. Total loss for the week: 107 points. The market has fallen on every single day of the week.
From September 2 when the stupid euphoria over the Unit Trust of India bailout (fuelled by the media) took the sensex to 3227 intra-day high, we have lost 300 points, giving up the entire gains. The market may give us a short rally anytime soon. It has got to somewhat oversold levels on a short-term basis, though oversold can become more oversold. According to some in the market, though sensex dipped below its previous support level of 2930, it closed exactly at that point.
Hopeful bulls will look forward to this support to hold and will grow increasingly optimistic if the index sustains above that level. Of course, even a small rise at this stage would see renewed call by fund managers and technical analysts to start bottom-fishing.
They may turn out to be wrong again. The declines have been progressively lower, encouraging the idea that a short-term bottom is being formed. This contrived optimism gets dissipated with one look at the weekly charts.
Almost flirting with 52-week low last week, the sensex has closed below its weekly close the last time it hit the intra-day low of 2930. At the time of writing on Friday, European and American markets were being sold off in a fury once again as company after company warned of weak sales and profits.
Next week, the earnings season kicks off with results from MphasiS BFL, Infosys Technologies and others. The market is not expecting great numbers (except software companies) and that is another logic being used by the bulls, namely, the bad news is already in the price and any good news will trigger a rally.
This is a valid logic sometimes but I am afraid no good reason to jump in now. The grounds for a fresh round of bad news are just being laid. Thanks to domestic mismanagement, purchasing power will not go up, the supply pipeline of everything from cars to soaps is getting wider and every major country, led by the US, is at the precipice of a significant fresh downturn. Stay in cash.