It's all been happening too fast. The fall was swift, the volatility at the bottom—gut wrenching, the recovery every bit as sharp. Having done all of this in just one month, the market has now hit the pause button.
This week, the Nifty has just been trading a narrow 50-60 point range, even as some mid-caps jump up and down. Globally too, markets have turned a bit range-bound. This is entirely understandable as this week is heavy with macroeconomic news flow from the US.
The market would be watching these data points very closely as we head towards the FOMC meeting on the eighteenth. We have had a global rally of significant proportions, partly in anticipation of a rate cut and now as we draw nearer to that event the market may simply go quiet and wait. Chances are we will fall in line as well. There’s no overwhelming news trigger too in September aside of the global one. Earnings are still a while away and politics isn’t quite making a ripple anymore. Flows have stabilised so there’s no big issue there either. All cues point to a range-bound situation.
The problem is that the market is very restless. Much that analysts would like it to spend some time in a range, just to get a feeling that a reliable base has been formed, it’s doing its own thing.
It’s tough to say which way it will head after this pause. Before touching previous highs, will it correct a bit and come back stronger to hit a new peak? Will it just carry on straight to new highs? Or will the global trigger drive all markets down, us with it? It’s really quite impossible to predict. Particularly so as there is a policy event ahead and expectations have been priced in. It may be prudent to be a bit cautious again, just for the moment, even if that means forsaking a few percentage points of profit.
A look at the market internals will tell you that an adverse outcome won’t entirely surprise the street. There’s been a lot of disbelief in this entire pullback and the market remains fairly hedged or even short.
There’s still a 40 point discount on the Nifty futures and the Put call ratio has been soaring, indicating more Put options are being bought and sold. The real long build up has been on individual stock futures and if there’s any sharp setback, these stocks may take a bit of stick. So enjoy a nap while the calm lasts; it probably won’t remain this way for very long. It will be fast forward or rewind again, soon.
(The writer is Executive Editor, CNBC-TV 18)