Daily call - Oct 14 2008

The markets are likely to open with a bang this morning, on the back of the largest single day point gains in the Dow and a near 13% surge in the Nikkei, which is making up for the time lost in observing the Sports Day Holiday yesterday. But will it be time to buy or sell? That will be a function of the kind of cash you are sitting on and also whether you can handle volatility.

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We observe that, 8 out of the top 10 stocks in terms of derivative open interest, saw a surge in open interest. While it may seem like a normal behaviour, it was not. In all the past large rallies we have seen this year, that have come after days of bear hammering, have actually seen cutting of open interest. It leads us to assume that while the shorts are sitting tight on their positions, the punters who have taken long positions are separate. The shorts in the system appear to be strong, at the same point they are potential bulls, as and when they scamper to cover. We believe that any rise beyond 3650 could be used to book profits as we had a long call on Monday morning. The Credit Default Swaps at 1300 basis points for Morgan Stanley and just a 7 basis point drop in the three month LIBOR does not prompt us to give up our bearish perch as yet.