Global central bank move triggered rally across the globe last week. The markets were moving sideways in the initial days, but by the end of the week market sentiments turned positive. Economic data showed that economies of developing countries are slowing down due to the central bank's previous rate hikes to curb inflation and recessionary pressure in the West. This had prompted many central banks to take some bold steps to boost growth. China has cut the reserve ratio of banks for the first time since 2008 by 50 bps (effective from December 5) to 21 per cent from 21.5 per cent. Not only China, but six central banks led by the Federal Reserve agreed to cut the cost of providing dollar funding via swap agreements and to make other currencies available as needed. December 9 will be a crucial day for the market because investors are expecting long-term solution from the European Union leaders for massive debt problems in the region rather than a temporary solution for the euro zone nations that use the euro as an official currency.
Close watch: The Euro sign seen in front of the European Central Bank
in Frankfurt am Main, Germany. PIC/AFP
Nifty has support at 4918 and 4869. The Nifty has breached the immediate resistance at 4869 and it is likely to test 5131 (100 DMA) in the short term. If it can manage to move above this level then it may test the 200 DMA at 5344. Investors who are positive in the short term can buy 5100 call options at lower levels for a holding period of five days.
The premium banks pay to borrow dollars overnight from central banks will now fall by half a percentage point to 50 basis points. Brazil too reduced borrowing cost joining the race with Israel and Thailand, which also lowered the rates last week. Our markets too rallied following China and US on expectation that RBI may also follow the path of its Asian peers and cut the interest rates at its upcoming mid quarter review on December 16.
We had some crucial economic numbers last week like the GDP numbers, inflation data, trade balance data, auto and cement sales numbers. The GDP grew by 6.9 per cent in the July to September quarter after expanding by 7 per cent in the first quarter. Agriculture rose 3.2 per cent, industry rose 3.2 per cent and services rose 9.3 per cent while manufacturing sector rose 2.7 per cent against 7.8 per cent (YoY) and construction rose 4.3 per cent against 6.7 per cent (YoY). The numbers were indicating a slowdown in the economy but the market just overlooked these numbers and remained optimistic that this will move the RBI.
Later we had the food inflation number for the week , which rose 8 per cent, the slowest in nearly four months against 9.01 per cent in the previous week. Onions were down 41 per cent year-on-year, potatoes 11 per cent and wheat by close to five per cent.
Apart from these, nearly all other food items surged upwards on an annual basis. The drastic fall in food inflation in the last two weeks should not be taken for granted because this is the play of base year.
Last week, Standard & Poor's reduced its credit ratings on 15 big banking companies, mostly in the Europe and the United States as a result of a sweeping overhaul of its rating criteria. JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Wells Fargo & Co, Goldman Sachs Group Inc, Morgan Stanley, Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG, were among the banks that had their ratings reduced by one notch each. A notch is one third of a letter rating.
Like equity the precious metal gold has also moved up sharply from $1660 levels and it is on the verge of breaking the crucial level of $1770. If it can move above this level then it may test $1813 in the short term.
Weakening dollar against euro helped the gold to recover from the lower levels. Gold has immediate support at $1721. Silver is likely to move towards $34.89 and $36.33 in the medium term and it got strong support at $32.42 and $32.17.
Investors can buy HDFC's December call options and DLF's December call options for a holding period of two days. In the mid cap segment investors can buy Wockhardt, Max India and Orchid Chemicals, which are likely to outperform the broader market. Short- term players can buy Indusind Bank stock Futures and PNB stock futures with necessary stop-loss.
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 email@example.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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