Saturday, October 30, 2010

Diwali Fireworks: Explosive Week Ahead

Its Diwali Time and it is going to be a explosive week ahead, most probably the most explosive week of the year. There are several reasons and I am going to list them one by one. This definitely merits both a fundamental and technical analysis. The Technical Analysis will follow in a day or two.
Fundamentals:

1. RBI Meet on rate hikes on Tuesday, November 2. The Bank is expected to hike rates by 25 basis points. Liquidity is presently tight because of Coal India IPO, but that situation will ease by Monday when the allotment occurs.

2. The Fed Meet on Nov 2-3. The timing is a joke played on all of us. US goes to polls on November 2nd and the Fed will meet after the result is out. The US has a Senate and a House of Representatives. Currently, the Democrats control both and the Presidency. It is expected that the Republicans will wrest control of both. What does this imply? A gridlock ahead. The 2 houses can veto anything which the President suggests in policy terms and the President can veto the House policies.
The Quantitative easing which the market is expected to be at least in a range of 1000 billion dollars. If it is below market expectations, expect big time tanking.

3. For India, it implies that if dollars are pumped in, markets rise as liquidity gushes. Gold will climb and we will have a big rally taking the indices to new life-time rallies. If no easing, then gold will fall 4-5 %, the markets will tank. Lower circuit is not ruled out. Such events need to be handled carefully.

4. Coal India lists on Thursday, 4th November. FIIs have pumped in huge amounts of money. This is first big ticket IPO where the FIIs had to put in 100 pc money. Earlier was 10 pc of bid amount. Much of the money is from new FIIs which will find itself into index stocks, if the Fed policy comes in favor. So, the money is there.

5. Obama is visiting India and expect a positive buzz of sentiments. There would be a slew of feel good announcements and could lead to euphoria.

2 Scenarios: Positive Fed policy, plus cash from coal India IPO plus big ticket announcements = Upper circuit or a very big rally on the Indices could be 600-700 nifty or 2000 sensex points in a blink.

Negative Fed policy, flight of capital leads to big fall.

Applying human psychology, Fed will take easier stand, delay the problem. Give liquidity boost, let dollar be a toilet paper after 2-3 years, and let next Fed Chief and US President handle the bigger mess. This may be the last chance for US to rein in printing of dollars else its doomed to failure in the long run. This is the Consumer age, we live for the present, in the long run we all are dead. That is the motto. This makes Gold particularly attractive after a dip last week.

One simple logic as Frank Templeton, bull markets die in euphoria, that final kick is missing yet. Where everything is out of control. Maybe this is the week.

The Technical Viewpoint will follow.

ps: Many blogs are giving out Trojan signals when you run your anti-virus. Does anyone have a solution for this?

1 comment:

  1. Hence, we are on the verge of a big rally?
    Aren't we?

    ReplyDelete