Crude crosses US $ 126 and global markets bleed for the week!

Our indices, especially Sensex opened gap down and the continued selling with alternate bouts of small buying continued till 'inlfation' data is released at 12 Noon, which has shown an uptick to 7.61% highest in the past 42 months, induced further selling from there on. Though the figure week on week is a quite a small raise from 7.57%, the corrected figure of past data has shown an unusual upward revision of 110 basis points against the provisional figures released every friday, spoiled the sentiment, suggesting the actual inflation figure should be more than 8.30% or so, at a later date, which naturally cannot be good news, and invites further administrative measures from government and regulators, forced bull unloading on week end consideration too. All markets have posted weekly losses, the crude is having one way journey only that is "up" so the imported inflation for our country shall be at higher levels only. Indian crude basket has crossed US $ 117 now and the last time, government increased the pertol, diesel prices was, when it was at US$ 66 or so.

Nifty has breached an important psychological level of 5000 in the last hour selling and triggering of stop losses, forcing nifty to close at 4982.60 levels finally, below the April settlement price of 4999.85, is certainly indicating further weakness in the markets next week, as every rally will be sold into, since the confidence gained recently, due to crossing of 200DSMA brought some retail participation back, which is evident in raising of trading volumes. Unless the Nifty crosses 5050 level quickly and trades above it this week, the participation levels shall be muted and volatility will increase from now on, as any small buying or selling will bring large movement in inidices. I recall my forewarning that investors need to be cautious, since this could be a bull trap in my posting dated 05.05.2008:

"Investors need to exercise caution, though 200DSMA levels are crossed, any external news or event also can invite selling from FIIs, and markets are not going to rally as they did in the last 4 years.

This is not a bull market and retail investors should not try to catch the momentum on either side, as they run the risk of loosing money, when the tables turn against them suddenly and swiftly."

How the coming week will be?: Crude now touching all time high of US $ 126.20, technically faces resistance around 127-128 levels, and the news from OPEC to consider increase in production to offset the supply setbacks from nigeria etc., might invite profit booking during the coming week. Bank of England and ECB have left the rates unchanged for the present as every government and economy is now concentrating on fighting raising 'inflation'. Strengthening of dollar should bring some stability in commodity markets too, the actual effect of administrative measures initiated by our government and RBI, manufactureres decision to reduce and hold prices, suspension of futures trading etc., in recent times, might bring the provisional 'inflation' figures on coming friday down to 7.30% levels. Nifty is crucially poised at around 5000 levels, if not cleared in the first two days of the week, then there is every possibility for it to falling into 4500 to 5000 band once again. I strongly believe that, though bullishness might not return so soon, nifty might move in a band of 4900 to 5200 during the coming week with increased volatility, and VIX also is showing slow raise.

Strategy for the Week: Buy 5200 puts on rallies to hedge the portfolios.