Both nifty and sensex have opened in positive territory and traded in small range initially till 12 noon, where sudden selling emerged, which brought the indices to make new lows for the month threatening another day of weakness. Sensex took support exactly at 15300, which is being observed by domestic funds and players as important level to buy beaten down stocks, coupled with positive opening of european markets, US futures indicating positive mood, lead to a strong rally, which forced huge short covering, by intraday traders, finally indices have closed with good gains. Sensex could close above march closing(15644.44) while Nifty could not clear 4700 itself. The volaltility was high, and shall continue further as VIX closed at 30.32 yesterday. US markets have posted substantial gains overnight, on the back of lesser job less claims, raise in retail sales numbers, inspite of Crude cruising by 5$ in a single session, touching US $128 once again now. Singapore Nifty futures are currently quoting at 39 points premium, and asian markets are trading with gains, shall give positive opening for our markets at the opening for certain, what will happen once inflation data is known by 12 noon, can be anybody guess.
Our markets are in firm bear grip, and the gains of yesterday, are a bounce in an oversold situation, as indices still trade below all moving averages and the breadth is quite negative. Further gains can be there due to short covering today, and analysts expect the inflation to be around 8.34% as at the end of week ended 24th may'2008, the effect of petroleum products raise will add another 105 basis points to the inflation, might push the inflation to double digits in the days/weeks to come. Thus, RBI has already indicated that they are prepared to tackle the problem through both 'conventional and non-conventional measures' instantly, to check it, should be kept in mind while dealing with equities.
Investors can exit weak long positions and increas cash levels as weakness shall continue next week too, as corporates try to increase cash levels to meet advance tax payments by 15th June' 2008. Government, Expenditure Secretary has announced 'austerity measures' of cut of 10% non-plan expenditure to all ministries, excluding interest payments, wages, and embargo on announcement of new subsidy schemes/packages to tackle the fiscal deficit issue, also confirms that the budgeted fiscal deficit will widen with the various measures announced recently.
Range for the Day: Nifty might trade in the range of 4500 to 4800.
Strategy for the Day: Buy 4800 puts on rallies and 4500 calls on weakness for intraday gains.
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