Truncated week ends on negative note! Expiry week to begin with volatility!

US Fed announcing one of the higest interest rate cut in the last 2 decades in single stroke, enthused US markets on 18.03.2008; which have posted one of the largest ever gains on their indices. While this was in line with expectation of the market participants, the fears of recession are confirmed, with this regulatory action. A mix of positive and negative news every alternative day, from US economy, will throw one of the higest volatility on its indices, however, S&P 500 and other indices, seem to have found a short term bottom, and after some struggle, indices will move up with volatility, as the risk aversion to equity is at its highest point. CBOE volatility index being around 30 and its moving with 10% alternatively, suggest that bottom formation is in process, as indices trade at the lower end of yearly range.

 

Coming to our indices, the truncated week, did not allow most of the traders and investors, to carry over the long positions, nor create fresh shorts, due to huge gap up opening on 19.03.2008, as intra day squarring up of positions, to take home whatever little or more profits, was the theme. Because now a days, Gap up and Gap down openings leave no chance for traders to take a directional view, either overnight or during the market hours.This is the reason why there is low open interest in derivatives and low turnover. Markets jump up or fall steeply as only institutional players are operating mostly now a day, as they do not trade and either sell or buy at their technical levels. Nifty has closed negatively for 3rd week in succession, though closed mildly positve on 19.03.2008. One heartening feature is that January low of Nifty is still held though Sensex breached and closed below it, during this volatility and carnage. However, both Nifty and Sensex have closed below 5DSMA (Nifty 4595.89 & Sensex 15151.13) though held the gap up openings on 19.03.2008. Much cannot be read as the trading  days are restricted to 3 only this week.

 

Expiry Week: When markets open for trading on 24.03.2008, most of the news is already out, inflation has reached 5.92 one of the highest in last 45 weeks, prevents RBI to tinker with rates, inspite of Fed, totally reducing rates by whopping 3.25 since the turmoil started in January, 2008. The interest differential is showing its effect on every sector of Indian economy, and moderation of growth is being predicted by economists for next fiscal. Advance Tax numbers of most of the corporates are very robust, and are in line with market expectation, excepting Tatasteel and some other companies. Commodities are correcting steeply, Gold loosing 80$ from its top of 1010$ per ounce, Crude correcting below 100$, other ferrous metals correcting steeply due to strengthening of dollar & profit booking augurs well for equity markets.

 

Hedge funds, which moved out of equity markets to commodities markets, when book profits there, would look to equities as they have corrected around 30% level from their peaks world over, this situation would improve liquidity for equity markets and relief rally can be expected from 24.03.2008, while the bear market structure will continue. Expiry of current series on 27.03.2008 will be very interesting and whether the spot nifty closes below Jan/Feb settlement price wil give a clue to next month series. As the open interest position indicates currently, 4500 puts are sold heavily in current series along with 4600 & 4700 calls. Thus nifty should hold 4500 level on closing basis, in case of any positive news flow,  and sentiment improvement, huge short covering of 4600 & 4700 calls will push the Nifty upwards. However, 5000 will be tough level to breach as Nifty is trading in lower block of 4500 to 5000 during this month and never closed above it any day till now.

 

Range for the Week: Nifty might trade in the range of 4450 to 5050 during the week.