Partly Correct-Partly Incorrect

In one of my earlier posts titled “Sell equity and Base Metals” I had said that Euro is reaching a crucial level of around 1.5 and is expected to correct from here, leading to a correction in Gold prices, Crude, other metallic commodities and equities.

What has happened that the dollar has gained considerable strength form there trading at a levels of around 1.46, gold has corrected to almost $1120 and crude along with other metals have also plummeted quite significantly. However, the only thing that did not go as I said was the Indian equity markets.

At the time when most of the commodities, oil and the global financial markets were falling, the Indian Nifty index stood all up just giving some sideways movement. This indeed was very surprising for, since this whole rally was because of a weaker dollar and was expected that with dollar gaining strength, the rally will fade away. However, this belief was put completely wrong by the market.

This could mean two things

• First and the one which everybody on TV is shouting is that the Indian markets have decoupled and now we are in a bull market of our own and India does not need to follow the global clues too stringently
• The other could be, which I am very fearful of is that on one fine day we may fall like the day we did in January last year. This was exactly the case to the two weeks leading to 21^st January 2008. On one hand all the global markets were correcting, while on the other the Sensex was scaling new heights everyday and then on 21^st fell by over 1000+ points on a single day

I strongly believe that one should remain very cautious now until the Nifty breaks pass the strong 5200 levels and only initiate a long position then. This is because a falling oil and commodity prices seriously hurts the bottom line of almost 45% of Nifty 50 companies. Moreover, what is going on since years could not change over one week and hence the question of decoupling does not arise.

If a falling Dubai can create vibrations in Indian stock market, a rising dollar has the power to cause an earthquake

Thus, currently the best trading strategy would be to go short with a stop loss of around 5200 Nifty.