Technically, market is very weak and is in a dangerous zone. Market is trading below 13 day exponential moving average, and the recent attempt to move above this decisive zone is failed and market is falling from last 3 days. In technical terms the bearish divergence pattern is clearly visible and apart from Reliance power listing and budget expectation, there are no other triggers to pull the market up. Global signals are negative as US markets ended in negative territory on Friday. Indian Inflation data is discouraging as inflation is up at 5 month high of 4.11%. This means there may not be an interest rate cut in India in the near future. This is the reason for a sudden fall in banking stocks on Friday.
As the general election is just one year away (under normal conditions), the primary objective of the Government is to keep the inflation under control. Bank stocks were flying high on the expectation of interest rate cut and the news may result in further correction in banking stocks. Stock market works on expectation and speculation and when there is negative news, the impact is swift and unforgiving. That is how markets work and we should respect this fact.
The cause for concern is that there are not many supports for the market in its downward journey. If the market breaks its short term support of 17000, next support exists only at 15500 levels. And if it breaks 15500 levels, next support is only at 14,000. So, if we have two bad days, market can slide to 14000 levels. Recovery of global markets is very important and if it doesn’t happen we can see 14000 levels very soon.
From a general market perspective we have seen withdrawal of two IPO’s (Emaar and Wockhardt) and postponement of union bank’s follow on offer. In one sense this is a black mark on Indian markets. But it is a good lesson to greedy promoters of the company to offer the shares to public at realistic valuations.
With the general market conditions, I am not too optimistic about Reliance power listing. By any miracle if I get a chance to sell at around 900, I would sell it as I am sure I can buy this at much lower price for sure. I am sure there will be many recommendations to buy this stock at high price, but one should be very careful to enter this stock at a high price.
I have read an article about grey market pricing and it seems the grey market premium has come down to 150 levels from previous 450 Rs. Th expectation is that Reliance power will list at around 600. If Reliance power fails to list at around 700, grey market operators are going to lose money and so they may sell other stocks in secondary market to meet their financial obligations, thus pulling the entire market down. So Monday is a dangerous day and I would look at almighty to save the market! Hope (only hope!)it would not be another black Monday!
Trading in banking stocks is also very dangerous for now. From an investment perspective, I am still bullish about banking stocks. For me only Sun Pharma looks attractive from derivatives trading and investment perspective. If market crashes, Sun Pharma can be bought at around 900 with a stop loss at 850.
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