Greece Ruffles World Markets

Last Week EU breathed a sigh of relief after announcing a rescue plan to bail-out debt stricken Greece that would write off their 50% debts. Hearing this news worldwide markets celebrated by rallying close to 7 to 8%. 

In a Dramatic turn of events today, Greece has decided that it will hold a referendum (Date not yet known) & is all set to reject the bail-out plan that was provided by European Union. This has come as a shock to especially other EU members mainly Germany & France (As Banks from these nations have large exposure to Greek Bonds). 

It is assumed that Referendum would be clearly against the Bail-out plan. A Referendum would also mean that Greece would walk out of the European Union & by doing so would be also defaulting on its bond payments.

Now why Greece people are against this Bail-out plan is pretty simple. It requires Greece to enforce strict austerity measures. In simple terms what the Government would be required to do is:

• Increase Taxes - VAT, Income Tax
• Lowering the income tax threshold that would make more people to fall under taxable category & more taxes can be recovered in return
• Reduce Salaries of Workers
• Cut pensioners pensions

So for people of Greece its a Double-edged sword & honestly any country would prefer to default than to take up the bail-out & enforce such strict measures. So its turning out to be more of a political crisis clubbed with debt crisis. 

On the other end there are banks of France, Germany, UK & US who would have to take a hit on their balance sheet if Greece indeed defaults & hence are more pained about this sudden decision.

Mr Papandreou's decision means voters will be asked to approve a €100billion (£86billion) deal that would see 50 per cent of the country’s debts written off – but also see harsh austerity measures imposed for years to come.

What would it mean to Us (Short Term Investors & Traders who trade in Indian Markets) - 

• In the extreme short term, i.e, Tomorrow we would be most likely opening Gap Down.
• Why ? - Because due to globalization we have Global Funds & Institutions investing in Indian markets  - Initial reaction to any such situation is to pull out money from Equities & put it to a Safe-haven (Safe Haven is indeed USD). Now we all know US is no doubt has got its own problems & it's debt also being so high but still USD is considered as a Safe haven by many because of various reasons.
• One thing to note here is - Markets are supreme & what would surprise us is if Markets has to go down - At Resistances/Supports we would have flurry of negative news & if it decides to move up then At Resistances/Supports we would have flurry of positive news.
• At Key resistances & supports one needs to be light in positions or trade with strict stop losses. As a trader one will make money only when his losses are less than his profits & hence a key thing would be to protect one's Capital to be able to trade another day :-). The kind of moves we are having over past few days are news driven & hence may take anyone by surprise. 
• Locally, the negative news are :
• India's fiscal deficit during April to September 2011 was 2.92 trillion rupees ($60.1 billion), or 70.8 percent of the full-year target, government data showed on Monday.
• In the same period last fiscal year, fiscal deficit was 34.9 percent of the budgeted target.
• In February, the government had forecast a fiscal deficit of 4.13 trillion rupees, or 4.6 percent of gross domestic product, for the current financial year ending in March 2012. - So clearly we would be missing this target by some margin. For next six months even a 2 Trillion Rs would mean our Fiscal Deficit would have crossed the 5.5% mark which would be bad for the Economy.
• There are chances that Petrol Prices may be hiked again as the OMC (Oil Marketing Companies - HPCL, BPCL, IOL) are all facing losses daily due to weakening of the rupee & also appreciation in Crude. Also rumours are Diesel prices may be deregulated soon.
• Technicals: Key Supports for NIFTY is at 5230-5170 zone. Below 5170 we would be moving below 50 EMA & 20 EMA zone (One should not remain Long once price dips below these levels). As was pointed out in the blog post " NIFTY Weekly View - 28-Oct-2011 " it was said that crossing the Top-Top Trendline is very unlikely. 
• Trading Strategy: Longs only above 20 & 50 EMA. Keep strict stop losses in Longs & Shorts. 
• Supports - 5230, 5170, Major support at 5000 levels. 
• Resistances - 5320, 5420

Bottom Line: One would never know how many more twists this Bail-out story would have & when would the actual climax of this story would come. 
The Political & International Pressure may well come from all countries in G-20 Meet (Starting Wednesday) & Greece may well have to budge down again under the pressures of Biggies of EU.
In Greece There is an emergency cabinet meeting is taking place on Tuesday evening to decide on the future of referendum & also there is pressure on Papandreou to resign from his post of PM. - The decision of Greece would go a long way in indicating the future move of the World markets & also the G20 meet can act as a catalyst too. So atleast in the near term it would be a news based moves :-)

All in all there are more negatives than positives in the system right now but market has got its own way to chart out the future. We as a trader should never try predict it's path but to follow it to make money. 

This is a one-off kind a post without any charts in it. Let me know how you like this post.