Wednesday, January 4, 2012

EOD Analysis for 4th January 2012 and Outlook for 5th January 2012

A flat start to begin the day and no significant change to OI in Nifty futures [was hovering around 23 mill through out the day. Although Nifty traded in a relatively tight band, quite a few whipsaws were generated.

Critical levels and outlook remain unchanged from yesterday.

For a sustained upside, fresh longs and volumes are needed; for the downside, current volumes are not sufficient to accelerate the falls but if volumes stay thin like this and upside is not sustained, prices will move down in a grinding fashion.

Other Updates
From a global market perspective, we had indicated that some peripheral Euro-zone countries deserve to enter the bond markets again. Less than 2 weeks from that post and we have Portugal auctioning bonds after a lull period of a year or so. It just vindicates our stance that in general, market makers tend to look forward and if appropriate measures are incorporated by a corporation or a sovereign, eventually things start turning around.

Does that mean that the Euro-Contagion is slowly getting out of the way? Por supuesto no - the debt burden is excessively leveraged [by the bankers and not the sovereign IMHO] and the current measures are compounding the challenges in reality. Even now bond markets will lap up the bonds but also create excessively leveraged swaps/swaptions and that is going to increase the impact of the explosion that will take place in future.

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