BULLS BEWARE, BEARS HAVE THE KNIVES OUT

Thursday should reaffirm the extent of the bear market India is going through. I know a lot of people would think I looked at some other screen since the Sensex was up 400 points and the Nifty rallied 100 points. But to me the internals matter – and the internal that stood out yesterday was FIIs selling Rs 1278 cr in cash markets. This is more selling than they have done on really bad days.

I raised this point yesterday during my show on CNBC-TV18, before this data was out – if you are a bull you don’t want to see FII net sell figure on a day like yesterday, and that’s precisely what happened. So essentially, in a shallow market, the FIIs are now selling on any good day, and yesterday was as good a day as any with so many large caps rising 4-5% or more in certain cases.

Refer to my last post where I spoke of the market mayhem and raised the possibility of FIIs selling in the last remaining safe bastions. That’s starting to happen – so far FIIs have been protected with their investments in IT, Pharma and to a certain degree some FMCG names, but the currency is fast eating whatever limited gains they have made. And this is in a relative world, where the US markets are trading pretty close to all time highs and investors have options to park their money somewhere else.

Now, next week assumes extreme significance. The bears are in firm control and they have so much ammunition at their hand that any rallies like yesterday would give them fodder to feed on, in this case bull’s meat to feed on. Also, look at the options data in non conventional way – the way deep out of money August Puts have added Open Interest, yesterday clearly looks like another bear trap.

I know the market is deeply oversold and almost everyone is bearish and normally that’s the signal of the bottom. But the last stage of bottom formation is always the most painful and results in most wealth erosion for bulls. That may just be around the corner.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation. All views expressed in this blog are my personal views and my channel does not subscribe to the same.