Yesterday, the US markets rushed to play catch up with the rest of the world and the Dow was up 120 points at the high, with oil prices down 4.5 %, giving a helping hand. Note, this is the biggest one day decline in oil since April 2005 and reflects weather futures promising a warm period in the US all the way till the middle of January 2007.
The ISM numbers gave traders additional comfort, but things began to fall apart as the market's notoriously short attention span turned next to focusing on the Fed Minutes that showed that the members were still concerned about inflation on the rise. Additional worry lines grew on trader foreheads as the august crowd at the Fed wrung their hands in concern at slowing economic activity as well. Yikes! That's all we need right now - inflation and growth worries.
So a glorious beginning to the new trading year was cut short and the Dow ended up only .09%. Other positive news - Merrill's upgrade on the health and consumer discretionary sectors, Walmart (NYSE:WMT) telling us that Dec sales was better than forecast and the highest trading volume in some weeks.
To sum up, looks like the OPEC cuts are not working and may be a measure in hindsight. We could have oil do a dead cat bounce off this sharp fall and then proceed to work lower till we have concrete news of an increase in demand or a dramatic fall off in supply. Keep your eyes on gold today for the correlation effect to work its way in.
Anyway,when one market closes, another opens. The Nikkei just got off to a stellar start, up 127 points, at the time of posting and that should herald a good opening for us too.
Watch for our Airline stocks to continue cruising - Jet Airways, Deccan Aviation and SpiceJet. Expect the auto stocks to continue building off their past upmoves - Tata Motors (NYSE:TTM), Maruti, Mahindra and Bajaj Auto. And of course, the IT sector has at last made a serious move up, at least in select names - Satyam (SAY), Infosys (NASDAQ:INFY), Tata Consultancy and Polaris, which continues to be the star performer. ICICI Bank (NYSE:IBN) is my pick in the banking sector.
And last but not least, Sree Renuka Sugar deserves to be mentioned; even though it may be a bit early to get in, it has been the best acting stock in the space.
I am also initiating new short positions in ITC, Godrej and Hindustan Lever.
Disclosure: Author hold positions in the above mentioned stocks on behalf of his clients in their investment portfolios.