The stock market now looks like a game of snakes and ladders, with small ladders and giant, monstrous snakes. The ladders, defined by short doses of short covering or profit booking by bears, are getting shorter with every passing week. The snakes are many and diverse and they seem to be all over the checker board with just no way of avoiding them. Every roll of the dice seems to lead to one of those yawning jaws that drag you down under.
The index is slicing through supposed support levels like knife through butter. First it was 5100, then 5050, then 5000, then 4800 - they have all come and gone. Bullish traders are throwing in the towel and there is a second wave of capitulation which is visible. The stock futures overextension may have been cleared out in the previous series but now the stronger holders, ones with midcaps in their demat accounts, are beginning to panic. There is a big bear market scare going. People who have been spoilt by earlier V shaped recoveries from sharp corrections are perhaps starting to figure out that this time there may not be such a swift pullback to old highs. That complacence has been shaken, paving the way for more paper to hit the market. The problem is that there is no one to absorb this paper, with a complete Buyer's strike out there. Therefore stocks are falling effortlessly on thin volumes. Many sections of the market have entered a value zone but that doesn't mean a thing, as we have seen in past bear markets. At some point the mutual fund and insurance money will come in and probably create a platform but what level that will be at is difficult to predict. The wildcard is the FII situation, we haven't seen any major selling from them in the last few weeks. If there's another wave of global selling waiting to happen then that could potentially neutralise the domestic institutional cash. In any case, using cash levels to predict market levels is a dangerous thing to do.
Sadly the only hope for traders now is short covering. If there is a sudden, unexpected trigger like the US Fed moving ahead of it's next scheduled meeting, with a big rate cut, that could spark off a wave of short covering that takes the Nifty back to 5000 odd. Maybe that's just being wishful. Even if that were to happen and provide some near term relief, the global newsflow will remain negatively biased through the next few months. Traders are already decimated, now investors will possibly have their patience and conviction levels tested.
Executive Editor, CNBC-TV18