This was a roller coaster week for the markets and the markets lost 2.3% of the index value. There were certain takeaways for each of us, which if adhered will save us a lot of money if not make money. Lets examine the key events for the markets.
1. FIIs were net sellers each day of the week. The selling intensified as the week went by and at the end of the week they had dumped almost 1 billion dollars worth of stocks.
2. Even though the Indices declined only 2.3%, the broader market was butchered. Have a look at today's Economic Times and see the number of stocks hitting 52 week lows as compared to hitting 52 week highs. Broader markets are usually leading indicators.
3. Gold is sustaining on a closing basis near its all time highs. That means people's perception of risk has increased. It could also mean those people who know are buying gold as a hedge. Europe remains a wild card and we do not which economy will need a bailout next.
4. FIIs always hedge in the Futures and Options market. So, they make money even if market is falling. They may well retain their equity holdings, make small paper losses here but make handsome profits on their derivative trades. remember its the money which counts.
5. The political storm is intensifying with new cockroaches coming out everyday. The Telecom scam may well take Manmohan Singh with it. It may sound ludicrous now but the government needs to regain the moral high ground.Manmohan Singh has enjoyed power for 6.5 years and made a place for himself in history. Exit Manmohan enter Pranab?
6. The Technicals are badly shattered. Next support for me, looks to me 200 EMA at about 5560.
7. If we take Elliot and wave 1 was from 6339-5690 = 649 points. Wave 2 from 5690 -6070 = 380 points. Looking at this, the targets for Wave 3 could be 5421, 5096, 5020. We may be about enter wave 3 of 3, the most dreaded wave with a devastating gap down also possible.
Its the time to focus on preservation of capital. Gilt funds, gold, bank FDs are what I would look at now.I would also keep cash in hand to invest in blue chips at lower levels.
A close above 6000 levels in Nifty and we are again moving up.