Archives : PETROL DEREGULATED, DIESEL NEXT - 25/06/2010

PETROL DEREGULATED; DIESEL NEXT – 25/06/2010.

GOVERNMENT BITES THE BULLET, FINALLY.  

The government finally took the tough decision and finally agreed to free the petrol price and make it market driven. Besides petrol which was increased by Rs.3.5/litre, diesel was increased by Rs.2/litre, kerosene by Rs.3/litre and cooking gas price by Rs.35 per cylinder. It was decided that the diesel prices will be freed up later. It was a difficult decision to take as the inflation is already in double digits. The extent of the price rise beat market expectations and suggested that the Congress has an upper hand over its alliance partners and wont buckle down under pressure. This move has given a fresh breath of life to the beaten down Oil Marketing Companies like HPCL, BPCL and IOC. Besides the OMCs, the upstream companies too will benefit as they wont have to share the subsidy burden. Besides any move to remove controls over the prices will also benefit Reliance Industries and Essar Oil to a certain extent.

 


PETROL DEREGULATED; DIESEL NEXT – 25/06/2010.

GOVERNMENT BITES THE BULLET, FINALLY.  

The government finally took the tough decision and finally agreed to free the petrol price and make it market driven. Besides petrol which was increased by Rs.3.5/litre, diesel was increased by Rs.2/litre, kerosene by Rs.3/litre and cooking gas price by Rs.35 per cylinder. It was decided that the diesel prices will be freed up later. It was a difficult decision to take as the inflation is already in double digits. The extent of the price rise beat market expectations and suggested that the Congress has an upper hand over its alliance partners and wont buckle down under pressure. This move has given a fresh breath of life to the beaten down Oil Marketing Companies like HPCL, BPCL and IOC. Besides the OMCs, the upstream companies too will benefit as they wont have to share the subsidy burden. Besides any move to remove controls over the prices will also benefit Reliance Industries and Essar Oil to a certain extent.

REFORM OVER INFLATION. 

The decision to free petrol prices and increase the prices of other fuels suggests that the government is focused on the reforms agenda and is ready to reduce subsidy burden and cut the fiscal deficit irrespective of a short term rise in inflation. The deregulation of fuel prices will result in savings in subsidy and along with the amount fetched by 3G auction will help rein in the fiscal deficit to 4.5% by next year. Governments move to increase the fuel prices is likely to increase inflation by around 150bps and will result in all round increase in the prices. The price rise could hasten monetary tightening by the RBI even before the policy review on July 27. One can expect RBI to increase both key interest rates by atleast 50bps as against the expectation of 25bps.

 

TECHNICALLY SPEAKING.

The Sensex opened the week at 17654, made a high of 17919, a low of 17546 and closed the week at 17574. The Sensex gained a mere 4 points on a weekly basis. Similarly Nifty opened the week at 5266, made a high of 5366, a low of 5259 and closed the week at 5269. The Nifty too closed with the week with a minor gain of 7 points.

 

Both Sensex and Nifty have formed bearish candle formations on the weekly charts. Sensex has formed a bearish reversal pattern called Shooting Star, while the Nifty has almost formed a bearish reversal pattern called Gravestone Doji. The above formations can be negated only if both Sensex and Nifty manage a close above their respective highs for the week gone by (Sensex – 17919 and Nifty – 5366). Until then, the bearish formation will continue to exert its pressure on the market.

 

Interestingly majority of the oscillators like the ROC, MACD and OBV still continue with their Buy signals. The RSI which is in buy mode but is moving lower at 57 is suggesting that the market is consolidating. The MFI too has moved lower from overbought zone in line with the market price. Similarly the Stochastic oscillator which was in the overbought territory has moved lower and continues in its sell mode. The Directional Indicators continue with their buy signal as the +DI remains over –DI.

 

The market has seen strong rise from 15960 to 17919 for the Sensex and 4786 to 5366 for the Nifty. Both the indices are now correcting their rise and the correction levels for the Sensex falls at 17171-16940-16708 and those for the Nifty are 5144-5076-5008.

 

The long term trend of the market remains intact as long as the Sensex and Nifty continue to trade above their 200dmas (Sensex 16950 and Nifty 5061). Please note that the 200dma is almost coinciding with the 50% retracement level of the recent rise i.e. Sensex 16940 and Nifty 5076. Hence expect strong rebound from these levels in case of a severe correction.

 

The Sensex zone 17150-17250 acted as strong resistance before the bullish breakout occurred. Now this resistance zone will act as support, when the Sensex comes down during retracement. Besides this, the 50dma (17136) and 38.2% retracement of the recent rise from 15960 (17171) also falls within this support band. Hence there is a confluence of supports existing between 17150-17250, which make this support zone critical. Similarly Nifty zone between 5140-5165 acted as strong resistance before the breakout occurred. Now this zone will act as support during correction. Besides, the 50dma (5139) and 38.2% retracement of the recent rise from 4786 (5144) also falls within this support zone. Hence expect strong support between 5140-5165.

 

If we look at broader picture, then we are still correcting the fall of the Sensex from 21206 to 7697 and Nifty from 6357 to 2252. Since both the indices have managed a close above their 61.8% retracement levels, the next possible target will be Sensex 18315 and Nifty 5478 which are the 78.6% retracement levels of the entire previous fall.

 

Since last October, the market is moving in a rising channel and the channel top has provided strong resistance to the market and that supply trendline top falls at Sensex 18289 and Nifty 5483. Both the rising channel trendline top and the 78.6% retracement levels are almost coinciding and hence Sensex and Nifty are likely to find difficulty in crossing over 18289-18315 and 5478-5483 respectively.

 

The O.I.PCR is quite normal at 1.49. For the month of July, there is strong build up seen in the Puts of strikes 5200 followed by 5000. Strong Call writing is seen at the strike of 5500. Hence expect some support to emerge at 5200, followed by strong support at 5000. On the higher side, 5500 will prove to be a tough resistance to breach.

 

Sensex has strong rising channel top Trendline resistance at 18289. Trendline support for the Sensex will come in at 17279.

 

Nifty has strong rising channel top Trendline resistance at 5483. Trendline support for the Nifty will come in at 5176.

 

For the week ahead, Sensex will find Support at 17394-17276-17150 and will find Resistance at 17793-17919-18047.

 

For the week ahead, Nifty will find Support at 5216-5176-5127 and will find Resistance at 5310-5348-5399.

 

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty5127517652165269531053485399
Sensex17150172761739417574177931791918047

LAST WEEKS RECOMMENDATIONS:

Except for Neyvelli Lignite and Exide which missed the target just a whisker, all other recommendations did well to achieve their targets.

STOCKReco. PriceTgtReachedLot SizeProfit
Buy FinTech134513741389150Rs.6,600
Buy Mundra714728729300Rs.4,500
Buy Neyvelli1561621581475Rs.2,950
Buy Exide1281351332000Rs.10,000
Buy IDFC1691741752950Rs.17,700
    TotalRs.41,750

THIS WEEKS RECOMMENDATIONS:

STOCKCMPSLTgt-1Tgt-2
Buy ONGC1263124512971331
Buy HPCL402386425449
Buy BPCL620603645672
Buy MRPL73717781
Buy GTLInfra45444852

WATCH OUT FOR:

 

 

 

 

ONGC

 

 

 

 

BPCL

 

 

 

 

 

GTL Infra

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

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