CAUTION ADVISED ON ACCOUNT OF NEGATIVE DIVERGENCE, FII SELLING IN DERIVATIVES

CAUTION ADVISED ON ACCOUNT OF NEGATIVE DIVERGENCE, FII SELLING IN DERIVATIVES

WORLD MARKETS

US indices gained about six tenth of a percent yesterday with Dow scaling fresh record high, encouraged by better-than-expected November auto sales.

November auto mobile sales totalled 1.3 million, up 4.6% from a year ago and higher than expectations of 1.27 million. The industry's annualized sales rate in November was about 17.2 million vehicles, which is the best pace for that month since 2003 and well ahead of the estimated 16.7 million.

The Commerce Department reported construction spending rose 1.1% in October.

Nymex oil fell 3.1% to $66.88 a barrel. Gold declined 1.5% to $1199 an ounce.

European markets, except a 0.3% lower DAX, gained between 0.2%-1.3%. Energy stocks rallied on the back of overnight gains in oil prices.

                                                             

AT HOME

Benchmark indices ended lower by four tenth of a percent after a choppy trading session, extending the losing streak to second day. Sensex lost 116 points to settle at 28444 while Nifty finished at 8525, down 31 points. BSE mid-cap and small-cap indices however, gained 0.9% and 0.6% respectively. BSE IT and Auto indices lost the most among the sectoral indices, giving away 1.5% and 1% respectively while Metal and Healthcare indices were the top gainers, putting on 1.2% and 0.9% respectively.

RBI, in its bi-monthly policy kept key interest rates unchanged as expected. However, the central bank has sounded a slightly dovish note on its inflation outlook and cut the March-end inflation target to 6 percent from 8 percent earlier. Raghuram Rajan said if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.

Government yesterday raised excise duty on petrol and diesel by Rs 2.25 and Rs 1 per litre respectively. Earlier, on November 14, the excise was hike by Rs 1.50 to help achieve the fiscal deficit target for this year.

FIIs net bought stocks worth Rs 107 cr but net sold index futures and stock futures worth Rs 1296 cr and 783 cr respectively. DIIs were net sellers to the tune of Rs 40 cr.

Rupee appreciated 14 paise to close at 61.88/$.

Congress yesterday said it will back the crucial FDI in Insurance Bill, which needs to be cleared by the Rajya Sabha where the BJP and its allies lack numbers to help the legislation pass.

OUTLOOK

China's official non-manufacturing PMI rose to 53.9 in November from a nine-month low of 53.8 in October. November HSBC services PMI has come in at 53, up from 52.9 in October.

Asian markets are trading with gains of upto a percent but SGX Nifty is suggesting a flattish start for our market.

In yesterday's report we had mentioned that when Nifty ended at record high on Friday, RSI on daily chart made a lower top, giving rise to negative divergence. This indicates that there is fatigue setting in. We had also mentioned that the immediate support on the hourly chart has moved up to 8500, which should serve as the stop loss for trading longs.

That continues to be the view. A sustained trading below 8500 would generate a sell on the hourly chart and would pave the way for further correction till 8430 and then to 8350.