Market is getting OILY...

Everyday we look at the news, and we get mixed signals. Amid euphoria of govt. surviving trust vote, IAEA thumbs-up to nuclear deal, and hopes of getting some economic reforms thru in the monsoon session (if one is called as BJP wants - and if it is - there is likely to be utter chaos about horse trading rather than reforms), the market is slowly but surely rising but things are not 'sticky', but more 'oily'. What I mean is that it can slide any which way and quickly.

On the other hand (there is always that other hand!), global economic concerns have not died down. Bad financial news flow from US is unabated. Even when oil slips below $120, it quickly rises on hurricane concerns, terror in Nigeria, and Iran's sabre rattling even though Saudi Arabia has increased its output for the past three months now.

Steel co.s are set to raise prices and are rising. Oil co.s are doing good except Reliance seems to be hesitating. Rupee oscillates in a narrow range making it hard to predict which way IT sector is going to move.

In such a scenario trading calls become very difficult. But going Long right now seems to be the correct move. Buy Nifty 4500 Calls on dips (CMP: 116.9) and hold at least till Nifty hits 4560 which maybe soon. Then start buying 4200 Puts (CMP: 90.30) as it highly likely the oily slide may usher in bear moods in the markets.

For those with higher risk appetite, buy RELINFRA around 1000 and sell it at 1060. Lot size is 138.

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Paresh
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Date 08/05/08 time 10.35 am,

Hi Paresh,
Yes, the markets do look to be making a very strong attempt to throw over the bears. The next selling whenever it comes about will tell us about whether this market is serius abot coming out of the bear grip. For that to happen, the fall has to be slow and gradual. If it falls with a thud, but which i mean a 2-3 % fall in a day then the chances are the beras will take over again.

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Neeraj B


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MY BLOG:
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Fortunately today the market panned out the way we had hoped, i.e. after initial hiccups, it rallied very strongly to close near 15,000 levels for the sensex and over 4500 for the nifty.

4500 Call opened at 110, touched a low of 101, ultimately closed around 170 netting us a tidy profit. One could have held on hoping for a gap-up opening tomorrow but in that case, one should have bought 4200 Put or 4300 Put as a hedge IMHO.

Our call on RELINFRA also obliged by opening at 1005 which was also the low of the day, and then showed strong bullish tendencies even as the market fluctuated initially in the morning session to end up around 1055 (high of 1059.80).

The other Asian markets did not do very well with India being an exception, but all major european markets are in +ve territory as I write this. If oil slides below $120 and stays below at closing, we are likely to see a gap-up opening tomorrow. In that case, watch out for reversals around 4640 (nifty future) area. Buy 4300 Put or 4200 Put then. One should get a chance to get out in profit before Aug expiry as the markets are volatile.

Hi Neeraj, needless to say at our age we try to avoid loud 'thuds' as far as possible

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Paresh
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As oil prices hover around $115, stock markets are rejoicing. Dow Jones went up by 300 pts on Friday as US crude oil inventory levels have gone up. US consumes 23% of the world crude oil supply. The motor vehicle miles travelled showed a 7th consecutive monthly decline in May 2008. Similarly, airline passenger miles have also gone down - pointing to a 'demand destruction' in oil use. But let's ask ourselves some Q's:

(1) Isn't demand going down pointing also to a slowing of the US economy? Doesn't that translate into negative effects on the world economy?
(2) The Indian basket oil price has gone down but has that been passed through to petro/diesel prices on the street? A big NO. Will it be passed through by realigning retail prices? A big NO. In this case, since the oil retailers are still losing crores, what has gone up will remain up there. So how come our stock markets are going up??

My take is that because RBI has raised CRR and Repo Rates, our banks have had to raise their rates. And this is attractive for foreign money whose domestic rates are much lower in comparison. So FII money is pouring into our markets. Since this money is propping up the bottomline, our markets are rising. Observe RBI actions over the past year and it shows that it has had very little effect on containing inflation as the real reason is on the supply side problems.

International rating agencies have downgraded India's rating over worsening fiscal deficit due to various subsidies, sixth pay comm. hikes etc. Govt. cannot perform miraculous reforms in a few months to have any significant effect on the stock markets. Weaker demand has lowered corporate earnings & profitability. In any case, oil is likely to rebound around $110 as it's a good support level.

Business Line reports that over the past three weeks, some 417 stocks have recorded over 20% gains; with big gainers from sugar, bank and realty sectors. FIIs outbought MFs by nearly a factor of 4 but there is a nagging doubt if this rally has strong legs to carry it too far. If Nifty closes above 4620, there could be a short term spurt to 4800 levels. Reliance Ind. is my bet for sudden upward movement.

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Paresh
If people put you on the SPOT, ask about FUTURE, and give you no OPTION;
just tell'em "the LONG & SHORT of it is How to Make Money!"
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