Inflation burns the pocket now…

Food inflation in India has surged to 18.32%. It surged to its high peak in the last one year. Food prices last month exceeded the level of the crisis of 2008 when a dramatic rise in agricultural costs sparked riots in over 30 countries.

Sharp recovery in the last week has been suddenly wiped out with the sell off in the Indian markets. Markets tanked for nearly 4%, the most sell off came on the last day of the trading session. Last weeks sharp rise, confirmed many people that the markets are in a good mood and the run will surely continue for some time. But nothing happened like this. Markets tanked on rising inflation and to control that the RBI may hike rates before the Policy Review.

The last week’s article named “Sensex 25000” seems to be realistic but there is still more time to see the actual figure. Indian markets tanked nearly 4% in a week. Midcap and the Smallcap Indices too sinked nearly 4%. Selling in the frontline stocks by the FII and the DII triggered the sell off in the Indian markets. Frontline stocks tumbled down in the range of 5-10% in a week. The major looser was the Auto Index which lost almost 7.5%. Bajaj Auto after the downgrade by CLSA tanked almost 15%, while Tata Motors lost 9%. Hero Honda and Maruti close down nearly 6%. Real Estate and the Bankex closed down 6.5% each. DLF contributed the most to the sell off, falling almost 8%. In Banking stocks Icici and SBI shrinked in the of 7.5-8.5% range while Hdfc lost 6%. Indusind and Yes bank collapsed 14% in a single week. Capital goods Index lost 4.8 while Metals continued its downward journey in 2011 also. Metal Index sinked 3.5%. Lnt closed down6.5%. Hindalco and Sterlite Ind closed down in the range of 5.5-6%. Jindal steel lost 14%. IT Index lost 2% and Oil & Gas Index lost a percentage. Hcltech closed down 2%. Ongc & Bpcl lost almost 6%.

The possible trigger for sell off in the Global markets could be because of possible worsening of European Sovereign crisis. Chinese policy makers rising key rates to tackle the rising inflation. The stock market is highly overvalued. It follows then that stock investments are nearly guaranteed to deliver poor, long-term returns. The rally since August 2010 isn't based on sound and sustainable economic factors, but on unsound and fragile faith in the Fed's ability to inflate asset prices. Stocks are extremely overbought when momentum indicators and the number of stocks reaching new 52-week highs stay below their cyclical highs, thereby not confirming the current run up. There is a debt crisis brewing, not just in Europe, but also in Japan and the U.S. The financial sector's problems have not been solved, but only papered over with money printing. In China a huge bubble economy has developed. Since Beijing has already implemented a turn in monetary policy, this bubble is prone to pop in 2011, posing a major threat for a still very fragile global economy.

Technically speaking rise gave trigger to buying spear. But the positive divergence changed to sudden selloff and the positive divergence once again changed drastically. Nifty as mentioned in my earlier article faced resistance at 6180 and fell from the same levels. Nifty made a high of 6178.55 and low of 5883. Sensex lost more the 500 points on the single day to close at 19691.On Thursday Nifty closed below the long term trendline. On Friday Nifty once again close below its 23.6% retracement levels. Nifty tanked below its 100DMA on the last day of the trading session for the week. Nifty immediate support at 5855-5800. Close below the same at 5800 Nifty will trigger selling pressure till 5700 levels.

Last weeks Call

Buy Ashok Leyland with SL of 62.25. Made a high of 68.75.

Buy Axis Bank above 1354 SL 1345. Tgt 1365-1370-1384. Made a high of 1776.

Sell Bpcl below 656 with SL of 661. Made a low of 614.

Sell DrReddy below 1662 SL of 1676. Made a low of 1636.

Buy Hdil SL 188. SL triggered

Buy Ibreal SL 127. SL triggered

Sell Infosys below 3430 SL 3440. Made a low of 3356.

This Weeks Call

Sell Infosys below 3350 with SL of 3357.

Sell Rel Cap with SL of 637 tgt 625-615.

Sell Hdfc Bank below 2265 SL 2271 tgt 2240-2220-2208.

Sell Ambuja below 127 SL 128.50 tgt 126-121-119.

Sell Andhra Bank below 141 SL 141.50 tgt 138-134.

Sell Axisbank below 1276. SL 289 tgt 1263-1245.

Sell Biocon below 400 tgt 395-391.

Sell Canara bank below 602 tgt 585.