Merrill Lynch calls India a high beta play on the price of Oil. Theoretically then, if Crude goes down, India and its stock markets should rise. In a holiday shortened week, with the August 15th Independence Day celebrations coming up, all commodity plays should move down and all industrials, financial and real estate stocks should move. Four days may just be too short a time for the short sellers in Bombay to catch up their breath, and these four days may be long enough for the Bulls to catch the Bears by the scruff. Finally and more importantaly, a Sebi meeting is scheduled for August 13th, this is in most likelihood recommend new reporting and disclosure norms for Participatory Note holders. What Sebi is now likely to put in place is the rule that only the Participatory note shareholders can Short-Sell the underlying securities. This will mean an automatic closure of the stock lending window by the FIIs which were holding stock for the PN owners, but who were lending out the stocks to Investors who wished to Short India. Between January and August 2008, close to $ 7 bn in Stocks has been sold by the FIIs. While Economic reasons are genuine, there is a possibility that some amount of Stock belongs to the PN holders which needs to be covered. If Sebi does plug this stock lending window to FIIs and Overseas based short sellers, there could be a massive bout of short covering which could take the indices beyond the 17500 mark within August itself. Time will tell. But the recent strong upmoves in Bhel, HDFC, HDFC Bank, ICICI and Larsen and Toubro indicate that the market has a whiff of the upcoming move from Sebi and shorts have indeed covered. What remain uncovered are the entire Ambani stocks like RIL, RPL, RIIL, Reliance Energy, Rpower, RNRL, Adlabs and RCom..If shorts cover up this group, a massive upmove could take shape. The commodity bubble may have finally burst, which could be a breath of fresh air next week to the other markets that have been squeezed by its relentless expansion. The tumble in the price of oil and other commodities might also give a boost to the retail sector, which is going to see some major action this week, and soften any blows from inflation news. has seen an amazingly steep decline in recent sessions, and that may continue. "The momentum has clearly shifted from buy-any-news to sell-any-news. We had a few pieces of data that should have created buying or been neutral, but have created selloffs," says Nathan Golz, futures researcher at Wachovia Securities. "There may just be a general redistribution of investment away from oil and into financials." "It's a pretty rapid unwind, and my guess is that it has to do with people who made long bets," Golz adds, noting that oil has a key support level in the $107 to $111 range, which was a low touched in the beginning of May.
"Once the trend was up, oil attracted a lot of big money," says Richard Sparks, senior equities analyst at Schaeffer's Investment Research. "Once the trend broke, I think a lot of those big-money players started to exit their positions."
Also key to the commodity reversal is the renewed strength in the dollar, which has been coming back amid weakness in international economies.
Golz says one of the major dollar indices crossed a big resistance point last Thursday, "so now it's off to the races. The big story next week is going to be whether the dollar can hold its gain."
The situation with oil and the dollar is likely to take much of the edge off this Thursday's consumer-price index announcement. Investors have been watching such inflation gauges intently of late, looking for signs that the consumer is struggling. That could change.
"I think the market is going to look beyond any rise in energy prices, and will focus more on the core data," which exclude food and energy and tend to be much less volatile, says Alan Gayle, senior investment strategist at Ridgeworth Investments. Also on the docket for next week is a slew of retailer data. On Wednesday, the Census Bureau will release its report on June retail sales. "The market is going to be digesting the end of the tax-rebate cycle and the ability of certain companies to be able to stand out in a difficult environment," Gayle says.
A number of major retailers report earnings. Foremost among those is Dow component Wal-Mart(WMT - Cramer's Take - Stockpickr), which
reports on Thursday and serves as a bellwether not only for its sector but for the entire U.S. economy. Other earnings reports in the sector will include American Apparel(APP - Cramer's Take - Stockpickr) on Monday, Macy's(M - Cramer's Take - Stockpickr) on Wednesday, Kohl's(KSS - Cramer's Take - Stockpickr) and Nordstrom(JWN - Cramer's Take - Stockpickr) on Thursday, and Abercrombie & Fitch(ANF - Cramer's Take - Stockpickr), JC Penney(JCP - Cramer's Take - Stockpickr) and New York & Co.(NWY - Cramer's Take - Stockpickr) Friday.
"It's all about the guidance at this point," says Fred Dickson, chief market strategist at D.A. Davidson. "Our retail analyst team will be looking for guidance on early indications of back-to-school spending, as well as inventory levels and evidence from teen apparel companies like Abercrombie that seem to be in leadership as far as teen spending." Sparks of Schaeffer's offers a caution about those predictions, though.
"Guidance is going to be very difficult," he asserts. "You don't know exactly what oil prices are going to do, and that seems to have been the biggest factor for retailers. I think it's going to be tough to forecast sales, unless there's a consensus that things are going to weaken, which could drag down the markets."
Also on the docket are a number of alternative-energy companies with their earnings. Pacific Ethanol(PEIX - Cramer's Take - Stockpickr) and LDK Solar(LDK - Cramer's Take - Stockpickr) come out Monday, while JA Solar(JASO - Cramer's Take - Stockpickr) and VeraSun Energy(VSE - Cramer's Take - Stockpickr) are due Tuesday. Other notable profit reports are expected from the likes of Liberty Media(LINTA - Cramer's Take - Stockpickr) on Monday; Applied Materials(AMAT - Cramer's Take - Stockpickr) and Dendreon(DNDN - Cramer's Take - Stockpickr) on Tuesday; Biovail(BVF - Cramer's Take - Stockpickr), Brocade(BRCD - Cramer's Take - Stockpickr) and Deere(DE - Cramer's Take - Stockpickr) on Wednesday; and JM Smucker(SJM - Cramer's Take - Stockpickr) and Agilent(A - Cramer's Take - Stockpickr) on Thursday.
Then, on Friday, data on capacity utilization and industrial production will be released by the Federal Reserve. Gayle expects an upside surprise, and he's looking for signs of industrial production holding steady, given the recent drawdowns in inventories. "Now that the last of the major financials have reported, we should be able to see the rally strengthen," Dickson says. "We should be able to go three or four weeks without any major surprises from financial institutions or banks. It's the middle of the summer, and people are on vacation. I think it'll be a week where Wall Street can catch its breath."
Disclaimer: Investment decision on the articles above, may be taken in consultation with your financial advisor. Nothing in this article is, or should be construed as, investment advice.
No comments:
Post a Comment