Expect A Flat Open And A Nervous Day

It began the week on an optimistic note, riding high on the Iranian deal with the western world. However, profit booking (as they call it) set in, pulling down benchmark indices by almost a percent from their previous days’ close. This is quite interesting and in fact reflects of the character of the market as it stands today.

According to the logic of the reason being thrown at us for yesterday’s fall, those who bought shares on Monday were found to be booking profit on Tuesday. This essentially means that today a 400 point rally is enough for investors to take money off the table. That could well turn out to be dangerous. The reason for this thought stems from the fact that there is a serious lack of retail participation in today’s market and most of it is driven by institutional fund flows, particularly the FIIs. In these circumstances, a pull out by these large guns on any serious issue could result in a catastrophe for the markets.

We have been continuously harping on the point that fundamentals don’t change overnight. The global scenario too is highly fickle. The US comes up with the taper threat every second week and the Euro zone will take its own sweet time to come out of the woods. Asia is running its own course taking cues from global counterparts and the Middle East and African regions have their own sets of geopolitical tensions. In circumstances like these, the markets are bound to see the kind of volatility that they are witnessing today. Investors would do well in keeping this in mind before taking that proverbial ‘leap of faith’ in any euphoric rise that you witness.

That brings us to what can be expected from the markets today. In overnight developments, US housing and consumer confidence data had European markets on their toes yesterday. Struggling to find direction, European markets closed lower on mixed data that came up later. According to reports, consumer confidence was down in November, which was not expected to be so. Americans are reportedly more worried about future employment and income prospects which have resulted in this lower confidence. On the flip side was the data on housing. New building permits were reported to have gone up by 6.2% in October (the highest level in more than five years) and home prices have been reported to have gone up marginally (0.7%) in September.

It may sound ironical, but the US markets finished the day in the green, rising sharply in the last minutes of trading. The technology laden Nasdaq finished above the 4000 mark for the first time since September 2000 while the Dow Jones Industrial Average found another record closing yesterday.

Taking cues from the west, Asian markets are trading quite mixed this morning. Japan has been trading weak with the Nikkei having lost as much as half a percent to recover later. It is still trading in the red, down 0.15%. Korea, Malaysia and Hong Kong and Singapore are following suit with the Seoul Composite trading down by a quarter percent followed by the KLSE Composite, Hang Seng, Straits Times all trading down marginally as of now. China and Taiwan are the two markets which are holding on to their gains this morning. The Shanghai Composite is  trading up by 0.11%, while the Taiwan Weighted is up by more than half a percent. The SGX Nifty is trading 23 points below its yesterday’s close.

Considering global cues, you could see a flat to negative open this morning for the Indian markets too. The downward pressure that set in yesterday could continue to exert itself even today. Fundamentally there are no factors that could impact the market today. But volatility and nervousness is guaranteed with a whole lot of economic data expected to come out of the US later in at night. Trade cautiously to avoid getting caught on the wrong side.