Crude cools further to 118$ and US FED leaves rates unchanged!

Inspite of asian markets closing with losses, and our markets trading in negative territory till 01.00 p.m. yesterday, the surprising rally from there on cleared number of hurdles on Nifty, thus, registering substantial gains at the end of the session. In my view, this happened due to heavy shorting in banking sector stocks, like ICICI Bank, SBI etc., in the morning by traders, who were expecting weak closing a head of FOMC meet! Larger market players must be having the confidence of Fed 'non-action' unlike RBI inspite of problems in US economy, which warrant raising of interest rates from now on, to check raising inflation. Crude cooled further to 118$ intra day, due to strengthening of the dollar vs euro and also on the fears of lessening demand even globally, due to raising energy costs. Technical analysts expect it to fall further to 110 levels, which in my view, is difficult to happen immediately now, as Fed left the rates unchanged. If the Fed were to raise rates, then the strengthening of the dollar would have forced the commodities to cool further.

 

Back home for indian economy, fall in crude prices, eases the pressure on fiscal situation, and the losses being suffered by oil marketing companies, who have huge under recoveries on all products which has mounted to a level of Rs.2,55,000 crores when crude touched 148$.  Now it is estimated that the same has come down to Rs.2,05,000 crores as the indian crude basket came to 122$ now. The rally in US or our markets is of temporary nature, a relief rally in a long term bear market, and the slowing down of global economy is quite apparent from various data, though some companies and sectors shall be performing well even in bear markets. Investors should be careful in entering the momentum stocks which started moving up on large volumes, where fundmentals do not support the prices, could be a 'bear trap'. VIX closed at 35.66 yesterday. Asian markets are trading with gains and Singapore Nifty futures are currently quoting at 65 points premium, indicates gap up opening initially, where profit booking can be expected. Nifty futures closing with 25 point premium might invite profit booking and initiation of creation of shorts once again as 4620 level is approached, where 100DSMA is currently placed.

 

Range for the Nifty: Nifty might trade in the range of 4420 to 4620 today.

 

Strategy for the Nifty: Buy 4600 puts on rallies and hold till tomorrow.