Wednesday, June 12, 2013

RBI Meet / 8% Fall in Nifty June/ 5% Fall in Rollar - What to expect next???

All right so the Roller has breached 58, Nifty has corrected almost 8% and bear cries are running all over the place. Midcaps and smallcaps have had their volume buzzers continuously hitting lower circuits

Import duties on gold have been hiked to 8% [2% to 8%] and yet gold prices keep going up in rupee terms
As mentioned in my earlier post, it is actually crude oil that is the biggest culprit for India [in the last 2 days, OMCs have had to make provisions for almost 22k crores for under-recoveries] and the same is slowly being priced in.

Also the majority expectation is that RBI will end up doing nothing in the coming meet

My projection on the same as follows
RBI urgently needs to address the Roller concerns
Inflation is rising beyond tolerable levels but we must also factor in the point that RBI's governor Subba has a tendency to surprise markets from time to time

I think a Rate Cut / CRR cut is highly probable in this RBI meeting [80% probability]
The moment this happens, suddenly the sentiments will turn positive and there will be a flux created with high demand for rupee [i.e. creating a lot of Long Rupee - Short Dollar positions]

The timing is pretty much close to June 21st Summer Solstice from where usually a 200-300 point move comes in.

5740 on closing basis is strong support and should that be breached on downside with 2 consec closes, then the next support band will be 5408-5532 [Highly unlikely to do that in June series]
A test of 5944-5970 band once again is pending [will be confirmed after close above 5880]

A low-risk high reward trade now
Buy Jul 5900 Call with Jul 5600 Put 1:1 for upside target of 5944 [60% probability] and downside target of 5532 [20% probability]

SL: If spread quotes fall 60 points below entry cost If the market grinds in between [20% probability], then the July options will lose less sheen and give more staying power.

Bottom-line: Markets are giving an excellent opportunity for 'traders' to gain 150-200 points from current levels. Expecting RBI to deliver a positive surprise 

No comments: