Monday, May 11, 2009

Trade Winds (KARVY)

Markets during the stress tests…

Global stock markets rallied significantly, amid expectations of stress test results for major US banks. Markets across the globe recorded significant gains, with Singapore, Hong-Kong and Thailand stock markets gaining around 12-16% last week. Other developed markets like the US, Europe and Japan also recorded significant gains. Meanwhile, emerging markets like India and China added 4-6% during the week.

The week observed a broad-based rally in equities and commodities across the globe on expectations of a slowdown in the pace of the economic recession as well as a possible recovery in the global economy. The much-awaited stress test results did not have any negative surprises, and that proved to be a positive for global stock markets, as the review of the capital structure of major US banks provided considerable comfort to the stakeholders. Overall, global equity markets are better placed for further upside after the stress test results.

Meanwhile, the Indian stock markets are passing through another virtual stress test in the form of election results scheduled to be announced on May 16, 2009. The Nifty rallied about 4.22% during the week, with metals, energy, construction, capital goods, BFSI and sugar sectors leading the rally. However, the Index faced stiff resistance at around 3700 levels, witnessing profit -booking during the weekend session, ahead of the election results. But buying momentum emerged at every dip due to strong global cues during the week. In the backdrop of positive global cues, the outcome of the general elections will set the trend for the next big directional move for the stock markets.

Overall, the Nifty is likely to be highly volatile within the broad range of 3500-3800-4000 levels during the week. Long positions can be assumed in the stock from energy, metals, construction, capital goods and BFSI sectors from lower levels. Short positions can be assumed in telecom, software and cement sectors. However, buying options is the preferred trading strategy, and this would limit the maximum loss while providing unlimited profit potential for short-term traders in these highly volatile times that lead up to the election results and its aftermath

To see full report: TRADE WINDS