Friday, August 22, 2008

Market Mayhem - Poor momentum

As i began my last post eying 4645 as the important resistance to get bullish, market did cross that level but only for about 5 minutes only to go down incessantly. Though there is little to doubt the ability of this counter trend rally important support was broken today. Now its time to remain cautious as oil fear has again gripped the market participant. Looking back at the crude oil price expectation and gold price outlook, both has behaved in expected fashion. I was expecting a strong upward move with a sharp fall in crude oil price. Crude oil did fall but up move in Nifty was capped by heavy selling.

On the whole the current market scenario is no giving any great trading set-up. I feel price level of 4159 is an important pivot support and market would remain above this support.

My outlook for inflation remains upwardly biased. I have been looking for inflation to touch 14% level and the time is closing in for this to happen. With food prices showing little signs of cooling and crude oil stabilizing, inflation is still very much the important parameter to watch. Equity prices remain weak internationally as Dow Jones break down from a triangle. Dow Jones would target 10,500 in next few weeks.

I think time is closing in when relation between crude oil and Nifty prices go out of order. There is a simple dynamics that oil price rise is being associated with demand growth in China and India. Now higher prices have led to poor growth in these countries. So this relation of crude oil prices and economic growth being negatively correlated is actually faulty. In reality higher oil prices lead to higher economic growth in export oriented economies like China. India is also a big beneficiary of in the infrastructure sector but the effect is some what subdued.

Studying cyclical price and economic developments in India reveals that the economic trouble would continue for some more time. In the very short term I fell September would be an important month as I expect market to gain momentum in September. There is little incentive to sell stocks at these levels and there would be healthy rallies to sell into. Patience is the key.

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