Market View – Could have been worse

The market opened with a big gap down due to large sell offs in the global markets, mainly due to the European debt issues and some weakness in Chinese manufacturing data. Although we see red across the market, there were some positive developments.

  • We did not sell off much after the open. Throughout the day the market was confined to a tight range and the lows of the day were not so far from the open. This is an indication that supply did not overwhelm demand and institutions were not panicking to sell.
  • I think the biggest positive development for the day was that treasury yields were able to rise near the end of the day. Movement in treasury yields is a very good indicator of fear in the market. Lower yields means investors are rushing into safe assets(price and yields moves inversely for bonds). Yields were at the lowest point earlier in the day but steadily moved up as the day progressed. This is an indication that fear levels reduced as the day progressed. Mostly institutions participate in the treasury market, so it is a good gauge of fear among big investors.

We will probably be hostage to the European situation for the next few days maybe even weeks. It is getting rather challenging to get good information as there is no clear communication or channels of communication from the European Union on where they stand on dealing with the crisis. As I have written in one of my earlier posts, it is prudent for investors to reduce some risk as the macro risks are elevated.

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