Weekend View

The talk from the just concluded trading week has been the fall in the US indices in the past two days and suddenly you had bear blogs which were blown to extinction pop out with comments and analysis and the proverbial " we told you so..". Never mind if the "we told you so" have been wrong over a 100 times in the past one year!

Don't get me wrong. I am not a bull or a bear, and this blog sides with neither.We trade the market both up and down without getting emotion in the way of up or down prices.

That being said, let's take a look at what lies ahead for the markets next week.

I'll want to take a look with you, at the fundamental side as well as the technical side for the short term.If you have been reading this blog long enough then you would know that I count for a perspective on the fundamental side of the economy on none other than our favorite Baltic Dry Index ( BDI ).For the technical side there is none better than the NYMO.

To see if the fundamentals have been deteriorating, let look at the BDI.You can catch my last post on this subject here

Certainly does not show any signs of pain or a deterioration. On the contrary it is nearing highs.

Now a look at the NYMO for the technical picture.

As you can see it is extended and ready to move up again.

Just in case you have forgotten here is the co-relation again :

With the Vix at levels of 40 thereabouts,there will be volatility for the next 2-3 sessions which can swing big, either ways.Such an environment is ideal for day trading and you should not miss out on the opportunity.

Also a drop in the Nifty from 5400 to 5000 constitutes a 9 % correction which is fairly normal in a bull market and well within the 7-13 % expected range.

The charts above show that the bottom is near.

Baltic Dry Index (BDI)

Most of you may be familiar with this term and may have read about or seen charts of this index.

For the uninitiated the Baltic Dry index is not just another chart in the global "stock market" or the "market of stocks" as some prefer to call it, but it is a leading indicator for economic activity and the chart needs to be seen as one.

The index is maintained by the Baltic Exchange. The cargoes being moved are raw material commodities such as coal, cement, and iron ore which are shipped through 20 different routes throughout the world. The index does not concern itself with finished goods or container ships, only raw materials and dry bulk specific ships are factored into the calculation. Hence it measures the demand for raw materials which are pre-cursors to production.The BDI offers a real time glimpse at global raw material and infrastructure demand.

Now the chart :

Notice the fall from 11793 to 693 coinciding with the Lehman Brothers stock market crash when world markets went into a tailspin.

Subsequently this chart has made higher highs and higher lows- up untill now that is.

I have also put a 40 week moving average on the chart and prices are just about there.

So what else can we glean from the chart from a stock market point of view :

1) Economic activity is robust as long as price holds up around here and continues to make higher highs.

2) Economic activity may be slowing down if 2571 is not held on the chart.

3) 40 week MA seems to be flattening, indicating that most of the recovery is already priced in.

Based on the above chart pattern, individual stocks on the NSE like GE shipping, MLL, SCI etc may be at great action points.