Markets can change before a toss of a coin, goes a very cliched line. Since the lows were marked in March, the last nine months have been filled with a reflation of the risk-taking trade. Take money out of less risky assets (treasuries, the dollar) and put that money to work in riskier assets (equities, commodities, emerging market currencies etc.).

Then comes the game changing news items:

* Default of Dubai

* Better employment conditions in the US (prospect of rate hikes in the nearer future)

* Downgrade of Greece

* German industrial output -1.8% versus consensus +1%

* Japanese GDP +1.3% versus consensus +2.8%

What does this all mean? That investors are getting skittish again and a risk reversal has gained strength. Let?s look at the after effects

* Dollar Index?As profit booking was seen in most major asset classes, dollar rebounded from a low of 74.269 to 76.310 breaking out from a downward channel

* Gold breaks down as the fears over inflation go by the wayside.

What is to be learned from this? That markets are fickle and in this environment that is particularly justified. The world economies are in highly unstable economic positions with massive government stimulus sloshing around. It is naive for anyone to think that he/she can invest in these unstable markets and remain ?right? for extended periods of time. For that reason, I do believe that we are in a ?trader?s market?.

If the data from Indian markets are anything to go by it adds weight to the argument. BSE Midcap Index has gained 5% in the past 10 days while Smallcap Index has romped home with 9% return. Compare this with the benchmark indices which have returned just about 3.5% in the same period. The advance/declines in the same period have been consistently favoring the advances. This then suggest that markets have turned a stock pickers market with not a lot of bets being taken on the benchmark indices.

For the sake of argument, let us assume that March was indeed our market low and the darkest part of this economic abyss, and then what does that mean going forward?

Let?s look at India VIX for some answers. Although it?s a relatively newer index, hence don?t have too much data available, by theory though, it shows an estimate of how much the price of a security or index is likely to move over a given period of time. India VIX looks to have bottomed out and slowly on its way up. A rising VIX indicates a switch from complacency to a state of anxiety. Unfortunately the lack of historic data on India VIX makes comparing the CBOE VIX (Chicago Board Options Exchange) more compelling

The equity market volatility was over 30% for nearly 8 years after the bottom was reached during the great depression. After the bottom was reached in Japan?s asset bubble, equity volatility was nearly 23% for 8 years. Intuitively this makes sense to me. After huge market and economic dislocations, it takes years and possibly over a decade to find stabilisation. Throw in a developed country default or a period of hyperinflation and even the smartest economist?s glasses become fogged over. It is probably a good time to take some chips off the table and see how the next few months play out. We should all begin expecting the unexpected as we go forward, because no one can predict how this game is going to play out.

?The writer is a derivatives analyst