On the verge of a collapse

On the verge of a collapse

With the S&P 500 now closing at a new low for the year 2010, the US markets are now on the verge of a collapse. A clear downward break out has not happened in the Dow as yet, but if the neckline of the head and shoulders formation breaks, it could be catastrophic in these days of high frequency trading market that shoots first and asks questions later.

The S&P closed at 1041 after touching 1035, a fall of 33 points or 3.10%. What’s more important, it closed below the closing low of 1050 (7th June) and broke the intraday low of 1040 (25th May).

The Dow closed at 9870 after touching 9812, a fall of 268 points or 2.65%. The Dow’s lows are still intact. The closing low of the Dow is 9816 (7th June) and intraday low of 9757 (8th June).

The technical behavior of the markets yesterday had more do with fundamentals than mere weak technical of Asia.

The Conference Board, a private research firm, on Tuesday cut its leading indicator index for China, sending stocks and commodities across the globe sharply lower. The research group said it revised down the index - which aggregates six indicators that measure economic activity in China -- to growth of 0.3% for the month of April, down from the previously reported 1.7% gain. With the revision, the index has now slowed from March's 1.2% rise. The research firm cited a "calculation error" for the dramatic change.

Also weighing on the Chinese market, Agricultural Bank of China's initial public offering saw a lower-than-expected pricing range.

European markets fell as investors eyed the $545.5 billion coming due for banks to the European Central Bank on Thursday. In addition to concerns about whether banks will be able to meet their repayments, investors also worried that debt obligations would leave banks with liquidity shortfalls.

A dip in the consumer confidence also made matters worse for the US markets as they ignored a 0.8% rise in home prices in April, according to the Case-Shiller home price index.

What happens to our markets?

Our markets had discounted the revision in the Chinese advanced economic indicators yesterday and by the close, a 100-point dip in the Dow was also accounted for. What has not been discounted is the lower levels seen by the S&P 500 and the possibilities of the Dow now going the S&P way in follow up trading.

Our markets have had buoyancy of their own with Government and the Reliance groups doing their bit to keep the embers hot. But one can’t swim against the current. So any larger positions in these recently loved stocks need to be pruned and those that have missed the bus earlier can try and get on one when these stocks reverse, with an eventual objective of either booking profits in the usual intraday rally that happens after the first two minutes of mourning or get their trades stopped out if the markets continue their fall.

From a fundamental perspective, while the US and European troubles ca still be resolved, there is no panacea for Chinese trouble, even acupressure. We, along with the rest of the world were waiting for the trouble signs to appear in the Chinese economic landscape. This is one.

In plain simple English, the times are getting tougher and we are sitting on huge gains. Don’t be greedy. Take them. Especially in the commodities.

Disclosure : No holdings or trading positions in stocks mentioned or recommended to clients

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Heard on the street: Bajaj Finserv back on punters’ radar

Bajaj Finserv back on punters’ radar

Shares of Bajaj Finserv rose for the fifth consecutive session on Tuesday amid speculation that the company may retain a controlling stake in both its insurance arms even if foreign direct investment (FDI) norms in the sector are relaxed in the future. The stock closed at Rs 436.50, with around 15 lakh shares being traded on both the exchanges, more than twice the two-week average daily volume.

On the National Stock Exchange (NSE), less than one-third of the 10.46 lakh shares that were traded resulted in delivery, underscoring the speculative action on the counter. Bajaj Finserv has an agreement with its foreign insurance partner Allianz SE, whereby the latter can increase its stake in both the life and general ventures once the FDI limit is raised.

Bajaj Finserv currently holds 74% in both the insurance arms, while Allianz has 26%. The stock had taken a beating around 10 days ago when the insurance regulator clarified that Reserve Bank of India’s (RBI) pricing guidelines for equity share transfer to foreign investors will not apply to insurance companies.

Investors were worried that this will result in Allianz being able to hike its stake in Bajaj Finserv at a pre-determined price, which is lower than current valuations, according to analysts’ estimates. The stock had risen to a high of Rs 557.55 in May this year, as analysts felt RBI’s pricing guidelines will lead to higher valuations for the company.

Large mutual fund stocks up on Jay Shree Tea

A heavyweight mutual fund owned by a private sector bank is said to have bought Jay Shree Tea shares for one of its sector funds. The stock closed at Rs 295.30, down marginally over the previous close. The stock, however, has risen over 20% in the past one month, defying the volatile market trend.

Brokers tracking the fund house say it has been a regular buyer in fast moving consumer goods over the past month. But much of these purchases have been of short-term nature, with the fund house sometimes booking profits within a week.

ICICI Pru’s PMS head may move to Reliance MF

Shahzad Madon, who previously headed the portfolio management services (PMS) division of ICICI Prudential Asset Management, is said to be joining Reliance Mutual Fund (MF) as head of its PMS division. Madon, who is learnt to have put in his papers at ICICI Prudential earlier this month, could not be reached for comment. Reliance Mutual Fund officials too were not available for comment.

(Contributed by Deeptha Rajkumar, Harish Rao & Nishanth Vasudevan)

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