Relief Rally

The markets rallied and I am happy to say that I got stopped out of my short positions at 4936. Considering the fact that I had gone short at around 5014, I made around 1.5% on this trade. I know that at one time the short positions were in the money by around 5.5 % and that it would have been great if there was a way to book profits at the extreme point of the move but, in my limited experience, I have not found a way to do that so I stick to my old method of waiting for a trend change to cut my positions.

The world leaders have been able to talk the markets up over the weekend and have bought themselves some time. At the same time however, they have made their tasks that much tougher because they are now starting to build expectations around the next meeting where something substantial is now expected to be announced. Any announcement which less than expectation can be a disaster. While this relief rally can continue for some time more, it is important for the politicians to be able get a consensus going not only among themselves but also among their individual constituents. Any signs of trouble or signs that expectations could get belied can see a resumption of the fall.      (BTW don't ask me what the market expects the European politicians to do. I have no clue. But the market must be expecting something otherwise it would not be rallying!)

 In all the positive noises that we have been getting in the last few days, I am worried about one thing. The Dollar Index looks like it has ended a multi year fall. If my view is right we could be seeing a sharp rally in the Dollar in the coming months. If that turns out right, I do not see how the risk on trade of the last few days can continue in the medium term. I hope I am wrong about the Dollar.

For the moment, I am flat in the market. Therefore there are two trades that are possible. I will go long 50% of my max exposure if Nifty futures moves above 5045 and I will sell 50% of my max exposure if Nifty futures falls below 4933.