Recovery or another bull trap?

Sensex rose 817 points(The Economic Times 15th Feb 2008)Recovery or another bull trap? That was the question market players were asking each other as major indices surged nearly 5% on Thursday. Their scepticism may well be justified. Last week’s rally ran into a wall of selling fury, and the bad news from the primary market has only worsened sentiment further. Throw in some uninspiring economic data and foreign fund outflows, and the picture begins to appear even bleaker. The 30-share BSE Sensex rose 817.5 points or 4.8% at 17,766.6, recording its fourth biggest rise in percentage terms, while the broader CNX S&P Nifty rose 272.6 points or 5.5% at 5202. Brokers said the upswing was fuelled by covering of short positions by traders. But bulls had something to feel happy about. Second line shares were in demand, with the BSE Mid cap and Small cap indices rising 4-5%. Market-watchers, however, caution that India still remains vulnerable to a global selloff, despite the relative superiority of its economic engine. The mood in world markets improved even as UBS AG announced a record a fourth-quarter loss $11.3 billion. The Europe’s largest bank, based in Zurich, took $13.7 billion in write-downs on securities infected by subprime mortgages. International markets rallied after US president George W Bush signed into law a package that will put more than $152 billion into the pockets of American taxpayers and low-income groups and seeking to give a “booster shot” to the ailing US economy. Good US retail sales numbers also acted as a positive surprise. This spurred buying across the board in India, and for a change, it was not just the Reliance companies which were in focus. Market breadth seemed to suggest that investors were regaining their nerve, though it may be a while before they are able to recoup their losses suffered last month. There was some respite for the beleagured Reliance Power shareholders, as the stock jumped 5% to close at Rs 370. Oil and gas, capital goods and realty shares were among the best performers of the day.“Day traders will be in full action until the Budget, leading to a lot of volatility in the coming days,” cautions Hiten Sampat, vice-president — investment research at Parag Parikh Financial Services. However, numbers from the derivatives market are not very encouraging, indicating that the rebound was led by short-covering rather than creation of fresh long positions. Nifty future contracts of the February series shed more than 18 lakh shares in open interest for a second successive day to end the day at a discount of just 15.15 points (up from discount of 20.55 points on Wednesday). More