Dec 8, 2013

Market Update - 8/12/2013

The markets closed the week 1% higher than last week. Exit-poll results were perceived to be the main market drivers on Thursday and Friday. The verdict is out and along expected lines. A small bull rally is therefore in the offering. The Sensex is just shy of the all important 21,000 mark.

The market is well above its 50, 100 and 200 day averages. Bollinger bands seem to suggest that we've reached the "upper-end" of the short-term rally. It will be interesting to see if the market 'listens" to technicals or ignores the same on account of the exit polls. A small rally can be expected- but investors will be quick to book profits. The short term support is 20,550.

The MACD and the RSI are still in neutral territory. This suggests that the over-all bull rally that began in end August is still intact and will hold for the near-medium term.

On to fundamentals, GDP growth and the CAD have improved. Dec corporate earning reports are expected and will be closely monitored. Expectations are that earnings will continue to remain 'subdued'. This could take some steam out of the rally. Fed tapering talks continue to swing the market both ways and there is still no clarity yet on 'when' actual tapering will begin. The US dollar has weakened but the yield on the 30 year G-Sec has gone above. This is a clear indication that the bond markets in the US are getting ready for tapering 'soon'.

If tapering happens then the emerging markets will correct as FIIs have been the biggest buyers and the main reason for the bull rally. We might not see a sell-off, but there will be a correction and a good opportunity for long term investors 'to buy'.

An interesting development that has been reported recently is the 'retail interest' in the US markets. These are the classic 'early bull-market' signs. Retail participation in the markets has been positive this year, for the first time since 2008. However, the US economy is still recovering and a rally might be premature.

The 10 year Indian Govt G-Sec has moved up to 8.86%. Tapering expectations and high brent crude prices may have moved up yields. The RBI's policy review will need to be closely watched. Tapering fears could move yields higher.

The INR broke its resistance of 62 and went up to 61.18 before settling the week at 61.43 to the US dollar. With this move the trading range for the Rupee may have moved from 62-63.5 to 61-63. Tapering fears will weaken the Rupee. Bollinger bands and the RSI suggest a moderate bounce back by the dollar in the short term.

Gold is currently close to $1230/oz in the international markets. This is close to it's 52 week low. Technically gold continues to remain weak. In the event of a Fed taper gold will only continue to move down. In the domestic market gold is at Rs 2,770/gram. Movement is expected to be inverse to the INR.

WTI crude closed the week at $97 while brent has crossed the important mark of 110 and closed last week at $111.61. This will not be good for the CAD.  


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