Short term Bullish; long term Bearish.

The title looks contra consensus but I have tried to explain it in later paragraphs. I Shall not� begin with building a reconnaissance of last week events, but good part is, we managed to close flat WOW on the bench mark indices thanks to a liquidity injection given by the no clue what�s happening central bankers. This boost along with freeze in short selling in U.K and USA shall keep the heart beat of the bulls beating for some more time.

Coming home, the Sensex managed to bounce back from the lows and a relief was that it did not breach the lows of July, made a double bottom (a bullish technical indicator). Let�s take a different perspective on this,� normalizing the benchmark chart with USD-INR ( Figure 1) we can make out that we have broken the July lows (One� may call me a naysayer , but let�s face� it, the four year bull run that we witnessed was driven by US$ inflows so we need to look our indicators in US$ terms).

What�s happening on the commodity side is definitely a good news (may not be for the commodity stocks) as tapering down of inflation expectations gives much more elbow room for central banks to react (They are much better placed to cut rates to usher growth , than they were in July when commodities were rallying). But caveat here is whether the demand destruction (due to high prices) overshadow a possible US$ slide impact or not. I am personally getting more and more bearish on US$ as the fed continues to worsen its balance sheet (Helicopter Ben!!!).

About my title this week, I believe, we need to have more behavioral rather than rational or logical approach to find where we are headed. FIIs have pulled out US$ 8 bn YTD (Last four year investment US$ 54 bn). Meanwhile, DII have put in US$ 12.2 bn YTD. Clearly indicates we are suffering from home bias. We remain in a state of denial till realty hits us. Illustratively speaking, the Indian IT companies continued their rhetoric no Impact of subprime all H1FY08, cautiously optimistic in H2FY08 and finally admitted in Q1 FY09 that things have worsened. In the same sense market participants and domestic investors are still in the state of denial and are continuing to hang on to the India growth story tagline. I believe it shall still take some time from to come out of this (It shall happen when the domestic fund flows to the equities witnesses some tightness. I am been a firm believer that the India growth story is offshoring (Both IT and ITeS) driven and for domestic demand to sustain offshoring should pick up and for that to happen conditions in U.S need to improve. Which appears unlikely for some time.� ���

I strongly believe this is a positional trader�s market (Intraday trades shall be risky), Hence troughs like last week can be used for building trading positions.� Identifying� a few stocks and studying their levels ( Preferably Large caps) with� sideways movement ( Eg: SBI Buy at Rs 1400 levels and sell at Rs 1550-1600 levels, Infosys buy below Rs 1550 and sell above Rs 1650, ICICI Bank Buy below Rs 600 and sell above Rs 650. ) is a good idea to ploy in these market situations.�

Before I end, time for self praise (pun intended), our previous strategy of buy rate sensitives and sell commodities have worked pretty well (BSE Sensex 6M -8.5%, BSE Bankex 6M -7.6%, BSE Metal 6M -26.6%).

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