25 May 2010

Back to the Bearish Ways

Back to the Bearish Ways


The markets are likely to open with a downward bias on continued international weakness. The US markets tumbled Monday with the Dow giving up all but 5 points of gains registered Friday during a fury of short covering on the options expiry.

After trading in a narrow range for much of the day, the Dow Jones Industrial Average tumbled 127 points, the S&P 500 lost 14 points to 1074 and the NASDAQ shed 15 points at 2214.

The late swoon indicated those investors’ fears about Europe's credit crisis and tighter rules on Wall Street are still running strong. Financials led the decline on a day when the street refused to take cognizance of the 7.6% rise in existing home sales.

The euro was under pressure during the session as the market weighed news that the Bank of Spain bailed out a regional savings bank. The 1.1% rise in Dollar Index, however, did not prevent the Crude and Gold futures to move higher 17 cents and $ 17.90 higher respectively.

The bullish fervour seen in the morning trades in our markets could not hold for the day as bears came back in the afternoon to snatch the initiative away from the nascent bulls. The Nifty managed to cling on to just 13 points of gains, from the 98 points seen at one point.

Barring Reliance Infra, which saw some additional position build up, the rest of the clan saw positions being pruned as investors took advantage of the god sent rally to prune positions.

Our stated view was also the same.

Expect the Nifty to take support around the 4850 level. If the 4832 level breaks, it will not augur well and we could see a cascade of selling by risk managers in that eventuality.

Autos, banks, metals, realty still look weak. As the settlement draws near, the options are becoming cheap and times match the stop loss of a trader. Switching to options during the last two days of the settlement is protective and also gives you more bangs for the buck. Ask your RM to understand how you can hedge your portfolio or use options to trade.


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