Report - 24.09.07
Market Outlook
Its all about Black Swans from here on.
US stocks rallied into the weekend and the Dow closed a tad above the 13800 level up 53 points . The S&P up 7 and the Nasdaq 17 as Oracle\'s 25% + earnings news helped spur the markets.
Energy prices took a break and crude fell 16 cents to close at $81.62 per barrel . Gold futures dropped $1 an ounce to close at $738.90. Other metals were mixed, as silver gained 15 cents on the day , copper fell 0.2 cents
Normally watching the Fed and predicting the next move is about as exciting as watching paint dry. In 1998, the Fed cut rates 75 basis points in response to the Russian bond crisis and LTCM. When the crisis subsided, they took those cuts away fairly quickly. While we do not think this crisis subsides in a few months, if it does, and inflation even remotely ticks up, they will take the recent cut, and the ones they are going to make in the future, off the table just as quickly. Nope we did not make that one up ....that came from a interpretation of a Fed Gov speech ...
We quote Fed Gov Mishkin - do read carefully the following from the closing arguments of his paper. (You can read the speech at
http://www.federalreserve.gov/pubs/feds/2007/200740/200740pap.pdf) "One objection to an easing of monetary policy following the collapse of an asset bubble is that it might lead market participants to believe that the central bank will always act to prop up asset prices, a belief that can make a bubble more likely. The central bank can mitigate such an interpretation, however, if it publicly emphasizes that its monetary policy is not directed at stabilizing any particular asset price but is rather focused on achieving price stability and maximum sustainable employment . Making sure that a house-price collapse does not do serious harm to the aggregate economy in no way eliminates sharp declines in house prices and so does not provide insurance against such declines. The same reasoning holds true for stock prices. Indeed, we have seen substantial declines in housing and other asset prices in many countries even when monetary policy has been eased substantially."
Where to from here? The dollar is weak,gold as well is momentarily tired. Domestic markets have made the vast leap of over 1000 points and its calves are sore. Well, we always try to listen to what the "experts" have to say- too many noises of 5k by Diwali ? So, 5000 before 4000 on the spot Nifty or vice versa? Its all about Black Swans from here on.
Does the banking crisis intensify in Europe ? Do watch the news flow from there Japan/ Korea and Taiwan are shut today so no great cues to go with from rest of Asia. We continue to remain defensive and hold cash especially given the gross overvaluations and the ability of big bro to pull oil discoveries at the drop of a hat with unerring consistency .
The week ahead 24th to 28th Sept 2007 Support 15868/4350 Resistance 16900/ 4950 . Weekly levels 4350-4950 . PCR 1.71 . Weak below 4810 / strong above 4850 on the Nifty spot
Following through on last weeks Fed blessed rally is essential now.The next move has to be secular and not just the "A" brothers for the skepticism to turn into serious buying , (notwithstanding the conspiracy theories and the euphoria on FII inflows -Fridays figures do include the Holcim block deal ).
If the buying is not serious and merely musical chairs to manage the Nifty you would do better to sit out if you have weak nerves or lack the nimbleness to switch trade direction quickly. Most of the stocks are now entering overbought zones barring a few which have still to complete their upward targets. Expect profit taking in several midcaps as the churn continues. Most vulnerable RNRL/ RPL
For the day the momentum on the upside will hold as long as the spot Nifty trades above 4850 On the upside 4930 can provide significant resistance. On the down side a breach below 4800 will see weakness
The weekly swings are in a wider trading range since the indices have left a huge gap on the charts and the RSI is horribly overbought at above 85. Long at your risk
High Risk/ High Reward
Nifty Sep Fut - Trading Range 4776-4897. Above 4850 Target 4897 /4905 Below 4810 support 4775
HDFC Sept Fut Sell the break of 2345 stop 2380 Target 2260
Momentum Calls
Unitech Sept Fut Buy above 340 stop 335 Target 356 /365
Tata Tea Sept Fut Buy declines or buy above 795 stop 780 Target 820 +
PFC Sept Fut Buy above 207 or buy declines stop 200 Target 214 /218
Sterilite Sept Fut Buy above 702 or buy declines stop 690 Target 720+
NTPC sept Fut Sell the break of 185 stop 188 Target 180 or lower
