The WAR is out there, it's REALITY v/s SENTIMENTS.....

The US stock market closed with a stupendous gain of nearly 2.5 percent. This is the biggest since the month of May, 2010. This quantum of gain is definitely going to have a positive impact over the streets all over the world. We may expect a gap up opening, a run in the north, some of which contributed by short covering.

However the topic of discussion is not the impact but the underlying reason. As suggested by the "Experts", this home run could be attributed to the Chinese Export data and the decrease in the jobless claims.

If data flow is the reason then let me bring some more data under consideration. China has soaring housing prices from the last one decade. With the current situation of unoccupied malls and floors, the leveraged position in the commercial real estate would be compared to the situation of Indian Reality majors such as Unitech and DLF in the year 2007 when they acquired land banks at record high prices only to do the mathematics of "Corporate Debt Restructuring" all through the year of 2009.

The second major reason was the jump in the stock prices of the oil sector companies especially British Petroleum. Again the "Experts" says the company is cash rich and the would be able to deal with the ongoing crisis.

Let us see this situation in retrospect to an Indian scenario in the year of 2008. No one of us could forget the "Satyam Computers". The accountancy gimmicks and forgery to perfection by Mr. Raju was not caught until admitted. The lawsuits in US were the natural consequences of the default. This was one of the main reason for hammering the stock prices.

What do you think would happen to BP which is already under a pile more than hundreds of class lawsuits and counting. What would happen to a company which is searched by the President of the United States to kick rock hard. What technicals suggest a buy signal for a scrip which has lost half of its market cap and trading near its 14 year low, nearly 40 percent below its 200-DMA. Even for people who believe in the notion of "Margin of safety" and "Bargain hunting", it is not advisable to buy a company which is most probably going to be bankrupt, however cheap the stock becomes.

Needless to say about the European crisis? So, what should be the logical conclusion? I think that better sense should prevail.

I do not want to sound bearish for the Indian markets for today and time to come but we should always remember one thing before investing in equity markets.
"Never let a trade to become an investment". "Trading", "Speculation" and "Investment" are three words with different meanings. Do not mingle them.

Akash Singh, Technical Analyst [Akash@hbjcapital.com], HBJ Capital Services Pvt Ltd.