Crude touches US $ 139 and breaches earlier high on dollar weakness!

Our markets have opened with positive gains initially on friday, on the back of strong overseas cues, and turned volatile, as selling emerged at higher levels. At 12 noon when the inflation data released shown an uptick at 8.24% the highest so far, selling intensified, as the recent measures by government will push it further in the coming weeks, which will invite some more measures from RBI also. European markets opened with gains and traded volatile, and finally Nifty and Sensex have closed with losses on week end profit booking as well as US futures were indicating weakness. VIX closed at 30.32 indicating the volatility to continue next week too. While it is being guessed that the support found on thursday lows will hold for sometime, as indices have fallen during the entire week, US markets have tanked on friday with disappointing economic data indicating that the recession fears daunt the investors again. Crude has cruised to US $ 139.02 an all time high, and finally settled at 138 levels, due to weakening of dollar against euro. The steep raise of crude by 10$ in single session is itself a record of sorts, and the small hope found on its correction to 122 levels two days ago, was a clear 'bear trap'. CBOE has shot up by 20% to 24 levels indicate volaltility for US markets.

On this back drop, the coming week will continue to witness weakness, as corporates will be raising cash levels to meet advance tax committments by 15th june'2008, the rumblings from constituents of left group that they would review the decision to continuing the support to UPA government also is slowly pushing the investor sentiment towards possible 'political instability'. Equity markets never like uncertainity, good or bad news once is out, the investors will look at fundamentals, in uncertain environment, commitment to equities will always be low, thus, the bearishness shall continue. Under these circumstances, at what level support emerges on monday or during the week, could be anybody's guess! Already analysts and channels are predicting touching or breaking of previous lows of 2008. But, markets have their own mind and adjust to the changing environment, during which periods there will be lot of pain to investors, if they start guessing, thus, it is better to allow the markets to settle and then take a view.

Increasing cash levels is the best strategy one need to adopt so that once the dust settles, portfolio building can be started in phases. People already invested need to hedge the portfolios with proper strategies like buying puts of index or individual stocks, to guard against any sudden huge drop in values.

Range for the Week: Nifty might trade in the range of 4450 to 4750.

Strategy for the Day: Buy 4700 puts on rallies and 4500 calls on weakness for intraday trading.