The negativity continued last week taking the markets further down on simmering domestic issues.
The negativity continued last week taking the markets further down on simmering domestic issues.
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Even though the markets remained flat for the initial session, later they witnessed heavy selling, which took them toward major support levels.
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The major issue was the rising inflation number. Recent food inflation was high at 18.32 per cent as against 14.44 per cent while the fuel inflation remained unchanged.
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Price
The rising price of food is puncturing holes in the consumers' kitty. The banking and other rate sensitive sector stocks actually dragged the markets down on expectation that the RBI may now step in with another round of interest rate hike of around 0.5 per cent to 0.75 per cent. On the other hand, commodity prices retreated from the highest levels they reached at the end of last year, as the dollar showed strength against major currencies on improving economy and better manufacturing and jobs data back in the US. It is widely expected that the cement sector will remain subdued this year, which lead to major selling pressure in cement stocks like ACC, Ambuja, Grasim, L&T etc. One of the leading rating agency's reduced cement sector rating also impacted the downward move.u00a0
Global
On the global front, the economic data was actually good this time around. On the Asian front the Purchasing Managers Index improved to 53.9 from 55.2 while the Singapore economy rebounded rising 6.9 per cent in the last quarter. US had seen a bunch of positive data like factory orders, which rose to 0.7 per cent against -0.7 per cent and non-farm employment change rose to 297000 from 92000. On the other side,u00a0 initial jobless claims increased to 409000 from 391000 above the estimated 405000 and the chain store sales too declined to 3.1 per cent from 5.8 per cent previously.
Commodity
Commodity prices remained weak for the whole week on strengthening dollar and investors reducing buying as they consider current prices to be stretched. Gold has lost key support and it may trade lower, and may get support at $1350 and $1330 levels before moving up.u00a0 Silver too is weak and has support at $28.20 and & 27.30.u00a0 Price declines can be utilised to buy these metals with a long-term perspective.
Flood
Food prices are at the top as sugar and meat prices are higher on rising demand and lower production in major producing countries. The worst flood in Australia, the largest exporter of coal, has caused wide spread damage to the mines. Apart from coal, damage to crops like wheat and sugar was witnessed, which brought buying in domestic sugar and wheat-rice stocks. Coal prices have climbed considerably with major stock price appreciation seen in Gujarat NRE Coke. Also tea prices have shot up due to drop in overall production in tea from 920.9 million kilogram in 2009 to about 907 million kilogram in the first three quarters of 2010-11 due to heavy rains and a pest attack in the region around Assam.u00a0 Stocks like Jayshree Tea, Harrison Malayalam and McLeod Russell are good for medium term investments.
Levels
In the stock option segment, call option of Infosys and TCS can be bought at declines ahead of the quarterly numbers, which is slated to be on January 13, 2011.u00a0 On the Nifty option segment, buying January 5900 call option and January 5900 put option of nifty together for a period of 10 days is also advisable.u00a0 As the Nifty has lost its key support at 5930, it may test 5830-5820 initially.u00a0 If it fails to stay above these levels then it may find support at 5600.u00a0 The major resistance for Nifty will be at 5940 and 6000 levels.
Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange and the Bombay Stock Exchange
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