Saturday, September 17, 2011

The Week That Defied The Weak

Dear Readers,

This past week was an amazing week in terms of fundamentals and market direction almost all over the globe. The news and fundamental data that drive traders and investors who decide their trading decisions mainly on these things were not very strong yet the markets managed to rally significantly! Let me outline briefly some facts of last week :

In the US there was increasing unemployment data, declining retail sales, record high poverty level and despite all that the markets were up significantly (Dow about 700 points).

In Europe we don't even bother to look at the details, the troubles are ubiquitous. In addition, there was another rogue trader scandal and open secret that Greece is on the brink of default which would trigger further trouble for European Union. Despite that the markets in most of Europe rallied substantially.

In India the inflation data, both monthly and weekly, attempted double digits, before Friday the RBI was supposed to hike rates again and on Friday it did do that. Auto sales are declining, IIP data suggesting substantial downturn and declining value of Rupee putting pressure on imports (particularly oil). Despite all these things, the markets rallied.

What does all this mean? I have always believed that fundamentals do not drive markets and its the mass psychology that does. There is only one thing that matters and that is liquidity. If traders and investors have money and are willing to buy, then all such bearish news and fundamentals have no power to stop them. Similar thing happens but on opposite way if traders and investors are pessimistic. Then even the best of the data is unable to make them buy. This is the reason I suggest looking at Technical Data rather than fundamental data for trading.

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