Wednesday, February 23, 2011

Stocks prisoner to oil.

Oil on Boil :
We again got it right by getting bullish from bearish in our last blog sensex bounced back from 17300 to 18500.Now biggest risk to our bullish outlook is oil.
Turmoil in the Middle East and North Africa continued to send stocks lower and oil prices up on Wednesday as crude operations were disrupted in Libya.Energy stocks rose almost 2 percent in the broader market, but other sectors vulnerable to turbulence in oil prices, like airlines, declined as crude traded around $100 a barrel.
Investors are concerned about the effects on the global economic recovery if the unrest, which has already unseated governments in Tunisia and Egypt, is sustained or spreads to other critical suppliers like Saudi Arabia. With oil prices at a two-year high, some analysts say higher gasoline prices could bear down on consumers in the long term.
Because of the uncertain environment, extreme claims get a lot more press than they normally would. The most talked about report on trading desks today was Nomura's call that oil would hit $220 if Algerian and Libyan oil production came offline. In any other environment, such an extreme call would have been laughed at, but in this environment, this most extreme of calls is the one that gets all the play...and feeds into the frenzy.
With oil touching $100, it definitely makes it more efficient to use more corn for ethanol. True, traders like to point out to me that there is a lot of skepticism regarding ethanol — a lot of money was lost in the last run (2006-2007). But corn is up 2 percent today.
Remember the Great Trade: short dollar/long commodities/long commodity stocks — how many billions were made on that trade in the last two years? But it's history — it's not working any more, and certainly hasn't been working in the past few days.
I mean the "when all hell breaks loose let's buy the dollar!" trade. Notice all hell has broken loose, and the dollar index is DROPPING?
Some of this appears to be do to a bet on another issue: where the interest rate hikes may be coming from. The euro is rising because it is getting more speculative flows from higher interest rate expectations, from speculation that the ECB will hike earlier than the Fed will.
Trading starategies at wiTdom buy on fall sell on rise.Important level to watch out for Nifty is 5170 on down side and 200 DMA i.e 5630 on upside.
We are cautiously optimistic on stocks and oil is on our watch radar.
Thanking you
Atul Sikrai
Sr Vice President & Head of Equities
wiTdom investment advisory.

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