INTRADAY MARKET STRATEGY

F&O expiry hold the key!

The Christmas party continued in the Indian stock market even though Asian markets exhibited a mixed trend and most markets in Europe were enjoying extended year-end holidays. Short-covering by the bears ahead of the F&O expiry lifted the key indices for a second day running. Market participants brushed aside concerns about the slowdown in the US economy and its impact on the global economy. 

After Monday's stupendous rally, the bulls managed to build on the momentum, stretching the rally to a fifth consecutive day. And, after taking a breather on Monday, small-cap and mid-cap shares resumed their advance, and outperformed their larger peers. Market breadth was also positive, while the turnover too showed a marked improvement over the previous trading day, though this is expected on the penultimate day of derivative settlement. 

At the end of today's trade, the benchmark BSE Sensex rose 338 points or 1.7% to end at 20,192 after touching a high of 20,211 and a low of 19,896. There were no big intra-day gyrations that had become the norm till last week. Meanwhile, the NSE Nifty climbed 1.4% to close at 6070. Outside the key indices, the action once again picked up the tempo, with the CNX Midcap index and the BSE Small-Cap index jumping 2.3% and 3%, respectively. 

In terms of the sectoral performance, the day belonged to Oil & Gas, Real Estate, Metals, Capital Goods and Power stocks. Select Banking and Auto shares also did well, but the stars of Monday's show, the IT stocks were subdued. FMCG and Pharma stocks too were lackluster.

Within the Sensex, the top gainers were DLF (4.3%), Hindalco (4.2%), Reliance Industries (3.9%), Tata Steel (3.5%), Tata Motors (3.3%) and SBI (3%). BHEL, Reliance Energy, L&T, Reliance Communications, Grasim, Cipla, NTPC, Bharti Airtel, M&M and Satyam gained between 1-3%. Other notable gainers included BPCL (5%), Zee Entertainment (4.6%), Cairn India (3.6%), Reliance Petroleum (3.4%) and ABB (2.6%). 

Bears get Claus-trophobic!

Smooth runs the water where the brook is deep”.

Bears are feeling claustrophobic as bulls enjoy the smooth Santa Claus rally underway. Concerns appear to be buried deep for now. Folklore has it that pessimists are on vacation this week stocks surge between Christmas and New Year's Day. The Santa Claus rally is also believed to be a result of people buying stocks in anticipation of the rise in stock prices during the month of January, otherwise known as the January effect. All said and done bulls continue with their shopping spree. Both, FIIs and Mutual Funds were net buyers on Wednesday (provisional), helping propel the Sensex and the Nifty towards their new lifetime highs.

Today will be a key test for the bulls. Can they keep pushing the Sensex and the Nifty to new heights or will they choose to relax a little bit. There are no dark clouds on the horizon, and most bad news (local and global) have been factored in already. Still, one should not get carried way and get complacent, as a reversal may take place without any prior warning. Today, we expect another positive start and hopefully a strong end to the last F&O series of the year.

The recent rally could partly be attributed to short-covering ahead of the expiry on December derivative contracts. This may continue even today, and enable the two main indices to scale to new peaks. Surprisingly, the volatility which was a daily feature till last week appears to have disappeared. Whether this is an emerging trend or just an aberration remains to be seen.

Small-cap and Mid-cap regained momentum yesterday and may continue to do so. However, the exchanges (BSE and NSE) have already putout advertisements in newspapers about unusual rally in dodgy scrips. We would also like to reiterate that one should be careful while investing in Small-cap and Mid-cap shares. The large caps are also back in action after a brief period of lull. In short, the Christmas party is likely to stretch for a few more days.

US stocks ended nearly unchanged on Wednesday at the end of a listless session, as reports of another troubled financial firm getting capital infusion helped counter disappointing holiday retail sales and a steep drop in housing prices.

The S&P 500 closed static at 1,497.65 and the Dow added 2 points at 13,551.69, lifted by Exxon Mobil after crude oil briefly crossed US$96 per barrel for the first time this month. The Nasdaq Composite Index too finished almost unchanged at 2,724.41, helped by gains in Amazon.com.

Circuit City Stores, Big Lots and Dillard's led declines in 28 of 31 members of the S&P 500 Retailing Index. CB Richard Ellis, the world's largest commercial real estate broker, posted its steepest fall in two weeks. Citigroup fell the most in the Dow Jones Industrial Average after billionaire investor Warren Buffett said he spurned stake sale offers from embattled Wall Street firms.

US stocks opened lower after posting some modest gains in Monday's shortened session. Markets were closed Tuesday for Christmas. The traded volume was low since many traders are on vacation.

A S&P/Case-Shiller report released yesterday found that US home prices fell a record 6.7% in October, highlighting the softness in the housing market. Thursday will see reports from the government on consumer confidence, factory orders and jobless claims.

Market breadth was mixed. About six stocks fell for every five that rose on the New York Stock Exchange.

Treasury prices fell, with the yield on the 10-year note climbing to 4.28%, up from 4.21% on Monday. US light crude oil for January delivery rose $1.84 cents to $95.97 a barrel on the New York Mercantile Exchange. 

In currency trading, the dollar fell versus the euro and gained against the yen. COMEX gold for February delivery rose $13 to $829.50 an ounce.

In Europe, key markets in Germany, the UK and France were shut for extended Christmas holidays.

In the emerging markets, the Bovespa in Brazil rose 1.9% to 64,288 while the IPC index in Mexico gained 0.5% at 30,002. The RTS index in Russia dropped 0.4% at 2283 and the ISE National-30 index in Turkey added 0.1% to 70,516.

Asian stocks rose for a fifth day led by energy companies and miners after prices of crude oil and metals jumped. 

The MSCI Asia Pacific Index gained less than 0.1% to 157.26 as of 11:05 a.m. in Tokyo, adding to a four-day 3.6% rally. That's the longest stretch of increases since Oct. 3. Benchmarks in all other markets open for trading rose, except in Japan.

The Nikkei in Tokyo was down 83 points at 15,570 while the Hang Seng in Hong Kong was up 100 points at 28,235. The Kospi in Seoul added 8 points at 1915 and Straits Times in Singapore was flat at 3475. The Taiex in Taiwan rallied 155 points to 8312 and the Shanghai Composite was down 6 points at 5226.