After comeback, bulls may step back

Success is a lousy teacher. It seduces smart people into thinking they can't lose. -Bill Gates.

The bulls staged a stunning comeback with a ~2% rally in the two main indices. The Irish bailout news coupled with positive FII data helped lift the glum mood amid concerns about simmering political tension. The Supreme Court will hear the PM’s affidavit on the 2G spectrum case today. The all-party meet failed to break the logjam in parliament linked to the highly controversial issue.



The opening today won’t be as good as Monday. In fact there could be some cooling in line with other world markets. The Japanese markets are shut for a holiday. Chinese market is down sharply as authorities struggle to contain inflation. Stocks in Hong Kong and Sydney are also in the red.

US blue chip stocks fell on reports of insider trading probe into Goldman Sachs and a couple of hedge funds. European stocks slid amid worries that the Irish rescue may not prevent further spread of the debt contagion to other eurozone nations like Portugal and Spain.

The key Indian stock indices are likely to remain choppy and rangebound ahead of the F&O expiry on Thursday. Don’t get carried away by any rebound, as the undertone is a little fragile given the anxiety surrounding the political developments and the external tensions.

The rising support line from the troughs of May 2010 and August 2010 turned out to be an important turning point for the Nifty, as it regained its control over 6000. The pullback from the lows of 5864 can sustain and there is a likelihood of the Nifty testing all-time highs of 6357 shortly, provided it manages to surpass the short-term resistance prevailing at around 6070-6080 and sustain above 6150. The Nifty could face resistance at around 6200. On the way downside, the Nifty might find support at 5845. A break below this level could trigger some more selling.

Talking of politics, in Ireland, one of the partners in the ruling coalition has called for an election. In fact, Brian Cowen, the embattled prime minister of Ireland, said that he would dissolve his government and hold a new election once a new national budget is enacted. He is scheduled to present a proposed budget on Dec. 7.

The euro slipped against the dollar yesterday, snapping a four-day rally, as investors questioned whether international efforts to halt a full-blown eurozone debt crisis are enough. Also, Moody’s warned of a multi-notch downgrade of Ireland’s credit ratings notwithstanding the weekend request for a bailout.

In Asia, Thailand technically fell into recession in Q3 CY10 and the Malaysian economy too slowed in the July to September quarter. China is battling two-year high inflation despite raising the reserve ratio for banks last Friday. Last week reports showed slowdown in Taiwan and in Singapore.

M&M has signed the deal to acquire Ssangyong Motors for $462.3mn.

Aegis Logistics Ltd and Gujarat Pipavav Port Ltd are announcing a major development impacting the future growth of both the companies later today.

The US financial markets are closed for Thanksgiving on Thursday while they are only open for a half day on Friday. Watch out for the revised Q3 GDP data and the FOMC minutes, besides reports on housing and consumer spending.

FIIs were net buyers of Rs 3.35bn in the cash segment on Monday (provisionally), according to the NSE web site. Local funds were also net buyers of Rs 2.12bn. In the F&O segment, the foreign funds were net buyers at Rs 11.36bn. The foreign funds were net buyers of Rs 14.43bn in the cash segment on Friday, as per the SEBI web site.

Asian Markets on Tuesday:

Asian markets are trading mostly lower with stocks in Shanghai extending their recent losses amid mounting concerns that two-year high inflation could prompt authorities to go for more monetary tightening.

The Chinese central bank raised the banks' reserve ratio by 50 basis points last Friday. Hong Kong shares moved sharply down, extending losses after policy makers announced measures to curb price speculation in the property market.

The MSCI Asia Pacific (ex-Japan) Index slipped 0.3% to 463.46 as of 9:04 a.m. in Hong Kong.

Japanese markets are closed for a holiday.

The Hang Seng in Hong Kong was down 1.4% at 23,187. The Shanghai Composite index in China tumbled 2% at 2,825. The S&P/ASX 200 Index in Australia was down ~0.8% at 4,607.

South Korea’s Kospi Index fell ~0.65% at 1,931. The Taiex in Taiwan was down ~0.25% at 8,353 while the Straits Times index in Singapore was down ~0.65% at 3,169.

Markets are also worried that China’s attempts to slow the economy and control inflation could weigh on commodity demand.

Asian stocks were also hit by speculation that Europe’s sovereign-debt crisis may spread after Moody’s Investors Service warned that a bailout of Ireland may pose a "credit negative" for the country.

The euro fell for a second day against the dollar on speculation that an election in Ireland will hinder the nation’s aid talks with the European Union (EU) and the International Monetary Fund (IMF).

Brian Cowen, the embattled prime minister of Ireland, said on Monday that he would dissolve his government and hold a new election once a new national budget is enacted. He is scheduled to present a proposed budget on Dec. 7.

The euro fell and Irish bonds pared their advance after Moody’s said a "multi-notch" downgrade in Ireland’s Aa2 credit rating was "most likely" because the aid would increase the country’s debt burden.

The Irish rescue package failed to damp speculation that Portugal and Spain would follow Ireland in tapping the EU-IMF fund to address the mounting debt troubles.

US Markets on Monday:

US blue chip stocks and the broader market came off session lows to end marginally lower with banks under pressure amid reports of a federal probe into insider trading charges against Goldman Sachs and a couple of hedge funds.

Also, the euphoria over Ireland finally seeking a financial bailout faded amid persistent worries that the rescue may not prevent the spread of the debt contagion among the other eurozone nations.

The Dow Jones Industrial Average closed down 24.97 points, or 0.22%, at 11,178.5. The index had been down by more than 100 points earlier in the day as investors worried over the stability of the euro zone.

The declines in the Dow were broad-based, with 22 of 30 Dow components ending in the red.

The Standard & Poor’s 500 Index shed 1.89, or 0.16%, to 1,197.84.

The Nasdaq Composite Index edged up 0.1% to 2,520.

The tech-heavy index was boosted by a 6.6% jump in Novell Inc. An investor group reached a deal to acquire Novell for about $2.2 billion, ending an eight-month takeover battle for the software company.

Financials were the worst-performing sector in the S&P 500 index.

The dollar index, which tracks the US currency against a basket of six others, rose 0.2%.

The price on the benchmark 10-year US Treasury rose, pushing the yield down to 2.81% from 2.88% late Friday.

Crude oil for January delivery fell 24 cents, or 0.3%, to settle at $81.74 a barrel.

Gold futures for December delivery turned around from earlier losses and added $5.50 to settle at $1,361.70 an ounce.

Stoking fresh worries for the financial sector, The Wall Street Journal reported that Federal Bureau of Investigation (FBI) agents raided the offices of three hedge funds, Diamondback Capital Management LLC, Level Global Investors LP and Loch Capital Management LLC, amid a far-reaching insider-trading investigation.

Bank of America was the Dow's biggest loser, dropping 3.1%. Other bank shares - including Citigroup, JP Morgan Chase and Wells Fargo - also ended sharply lower.

Goldman Sachs was the S&P 500's laggard, with shares tumbling 3.4% following a weekend report that investigators are looking at possible insider trading allegations tied to the firm's dealings in transactions including a health-care merger.

Trading could be choppy this week, with many market participants taking time off ahead of the Thanksgiving holiday on Thursday. Wall Street will be open for only half a day on Friday.

Trading volume was on the light side on Monday, but still within normal range. Below average trading volume can contribute to volatility.

The rest of the week brings a raft of economic indicators: a revised reading on third quarter GDP, housing data and durable goods orders, as well as personal income and spending figures.

On Sunday, Irish Prime Minister Brian Cowen formally requested substantial financial assistance from the European Union (EU) and the International Monetary Fund (IMF). The group is now working to hammer out final details of a rescue package worth tens of billions of dollars.

US stocks pared losses after Irish Prime Minister Brian Cowen said that he would call for the dissolution of parliament in the new year after a vital budget vote Dec 7.

Netflix shares jumped to end 8.8% higher after the company announced a streaming-only video service for $7.99 a month. The streaming plus DVD rental service price will increase to $9.99 a month.

Green Mountain Coffee announced late on Friday that it will restate earnings for the last three fiscal years and the first three quarters of the current fiscal year, because of accounting errors. Shares surged more than 18% Monday after the company said those issues had been resolved.

Novell shares closed 6.6% higher after the software maker said it had agreed to be bought by Attachmate for $2.2 billion.

After the close of trade, Dow component Hewlett-Packard posted fiscal fourth-quarter earnings of $1.33 per share. Sales rose 8% to $33.3 billion, topping analysts' forecasts of $32.8 billion. Shares rose 1% in after-hours trade.

European Markets on Monday:

European stocks ended lower as initial enthusiasm over news of a financial bailout for Ireland gave way to worries that the deal does not spell the end of the regional debt-cum-fiscal crisis and that there might be more sovereign bailouts further down the road.

The Stoxx Europe 600 index fell 0.7% to close at 267.74, after hitting an intraday high at 271.68.

In London, the FTSE 100 index slid 0.9% to close at 5,680.83. The CAC 40 index dropped 1.1% to close at 3,818.89.

The German DAX 30 index failed to hold gains, losing 0.3% to end at 6,822.05. The index marked a new 2010 closing high and 52-week high on Friday.

The Irish ISEQ index fell 1.5%, weighed down by heavy losses for financial stocks.

Spain’s IBEX 35 index slumped 2.7% to 9,996.40, while Portugal’s PSI 20 index dropped 1.4% to 7,787.64. In Greece, the benchmark stock index fell 2.2%.

Stocks across Europe fell after Moody’s Investors Service said that a review of Ireland’s Aa2 rating would likely result in a "multi-notch downgrade."

On Sunday, the Irish government said that it has formally applied for aid from the European Union and the IMF. Irish financial stocks came under pressure after Prime Minister Brian Cowen on Sunday said that banks would need to become smaller and may need to raise more capital.

Separately, Ireland’s Green Party announced that it would leave the coalition government once a budget and rescue plan are in place, setting the stage for a January general election.