"Carnage on Indian Markets"

"The unabated fall on Indian bourses yesterday, was though similar to other major falls witnessed in 1992,2001,2004 & 2006; but historic as it was swift, un anticipated by everyone. We have cautioned in our 2008 forecast and before market hours to increase cash levels by selling on rallies, but hardly any rally was there to sell since technical factors took over which are beyond any person's control, to do damage control.

It appears there was inter bank settlement problem on friday, due to which margin calls are not met by few brokers, and the sudden fall of more than 5% on indices, lead to wiping of entire margin of traders and retail investors, who deal with sub brokers, who are forced by exchanges to cut the positions, failing which exchanges have forcibly squared off the positions, resulting in almost 12.5% on indices when calculated from the day's high to day's low. While BSE could not allow trading beyond 10% circuit filter though the fall happened after 2.30p.m trading continued on NSE, which lead to some more confusion among the retail which lead to further panic.

Once this exchange forced selling is over, indices bounced well off from day's lows, though posting largest ever single day fall creating history.

All global markets have witnessed steep fall on heavy selling resulting in 5% to 8% fall, US markets were closed and shall open for trading on Tuesday. The low's made on Nifty(4977.10) & BSE(16951.50) are very close to 200DSMA and the indices have closed far below 100DSMA which stands at NSE( 5529.14) & BSE(18617.52) confirming the short term top at 6357.10(Nifty) made on 08.01.2008 & 21206.77(BSE) on 10.01.2008.

Since our markets have posted continuous losses for the past 6 trading sessions bringing in more than 20% correction from the recent tops made in 2008, some relief rally or stability shall return to the markets today/tomorrow. However, the pain is not yet over, as further margin calls from the banks and other brokers shall accentuate the situation, if there is another round of weak opening and trading.

2008 yearly channel support on sensex lies in the range of 16500 to 17500 which shall be tested more than once, and any bounce from these levels shall be the first opportunity to invest in front line stocks like...Reliance, Ongc, Itc etc., Staying cash or protecting the portfolios with going long on put options is the prudent strategy for the time being, till the dust settles and calmness returns to the world markets.

Strategy for the Day: Buy 5000 calls on weakness and 5500 puts on rallies for quick returns.