Vijay L. Bhambwani's Ticker: Markets are precariously poised
Subscribe to enjoy similar stories. Dear reader, Last week, I wrote this was a phase when traders should focus on capital preservation and trade light. In my past articles, I have drawn your attention to extremely high volatility and a sharp fall in traded volumes.
These are very challenging developments for retail traders as the price discovery mechanism gets inefficient. Low volumes result in wide bid and offer spreads. These are limit price orders of bulls and bears.
Wider spreads mean higher trading costs and lower take-home profits. We saw this happen in the markets last week. US president Donald Trump kept our markets on the edge with tariff announcements.
The approaching expiry of the February derivatives contracts added to the nervousness. Traders were preoccupied with rolling over and/or closing their existing trades. This is routine ahead of expiry.
It also means fresh buying tends to be limited. Due to liquidity concerns, markets watched the RBI’s withdrawal of an open market operation (OMO) of $3 billion worth of treasury bill sales. The cost of funds is becoming a major concern for traders and investors alike.
My readers would do well to read books written by Dick Stoken, whose work on the cost of funds is THE gold standard on the subject. I believe markets are precariously poised due to the overhead supply (selling pressure from bulls trapped at higher levels) on advances. Sustainable upthrusts will be elusive unless aggressive follow-up buying is seen at rallies.
Data shows retail investors have availed broker-financed funding for investing in stocks to the extent of ₹72,634 crore. This figure is marginally lower than the peak funding availed up to last year. This data and MWPL tell me retail traders are
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