Sunday, March 22, 2009

The Political Games begin


It was a positive week for the second time in a row for the markets.

The year nav pumping is on full swing. Coupled with the Put writing at 2700 strike price for March expiry, 2700 looks to be holding for this expiry.

The PCR is 1.59. With such amounts of Puts being written, someone may just have other plans in mind.

A sharp fall from this level will have the Put writers running for cover.

For the past few months, the option writers have much huge chunks of money by the range bound movement of the Nifty.

Remember, 1 fall will take away all their earnings. The same thing had happened in Jan 2008. The Put writers made hay for several months, then 1 month took away all their profits.

Always 1 should stay have from naked option writing.

The Political scene is becoming more and more complex. Hung Parliament seems to be the inevitable result.

1. The Congress will be weakened by the split in the UPA in Bihar. I see Nitesh Kumar a clear winner from the division of UPA Votes. The split in Uttar Pradesh between the Samajwadi and the Congress will strengthen the hands of Mayawati.

2. The BJP is not doing much better either. The Arun Jaitley - Rajnath spat will weaken its chances. Orissa also will be a problem.

3. Chiranjeevi may pull a few rabbits out of his hat in AP. He will definitely not join the UPA because of anti-Congress stance. He may well become part of the NDA.

The scenario looks very plausible, that a non-Congress, non-BJP Third Front coming to power with no agenda except further looting the country.

We all know how the stock markets will react to it.

My strategy will remain simple. Stay on Cash and buy at 7500-8000 levels. And keep at least half the funds in hand till the elections are over.

We are just now entering the era of deflation. The pain on the street starts now. In the past 1 month, the real estate prices have started cracking finally in mumbai and suburbs like Kharghar.

Real Estate starts cracking when the stock market is near its bottom because of lag effect.

We may have the bottom for the markets soon in place. Remember markets are at least 6 months ahead of the real economy. If the economy is to show recovery post the harvest season (Kharif crop), the markets will bottom out in a month or two.

Caution remains the buzzword. Bear Markets are rallies are sharp, furious and short. I dont see the markets going up much higher from here in the short term.

2 things can happen from here:

1. A straight drop to 2400-2500 levels.
2. A small dip, some more rally and then a drop.

Either ways we seem to be in for lower levels.

The markets tanking after this rally, will remove the last optimist from the market. That is when the bottom is formed.

Even in this rally in our group, I see the number of people buying stocks dropping sharply from previous rallies. Another indicator that the bottom is near but not yet formed.

The last bit of hope is still there. It needs to be crushed to form the bottom.


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