Mkts to rally until crude bounces back

After crude oil prices falling below USD 140 per barrel and positive cues from the global markets, markets have been relieved. The market is expected to proceed with its technical rally. The markets are seen as positive until crude bounces back.

After a long time we have got the timing on our side?

I hope this continues for a bit and tomorrow you do not come back and see crude at more than USD 140/bbl, so it just needs to be quelled for a bit. But if crude continues like it has then I think we have got a little bit nice little rally building up out here. Even if it is a pullback it might be a smarter than expected pullback.

Global markets are fine and we saw how the market reacted to politics, done for the moment therefore the markets relieved. Hopefully it will not be tested with the vote of confidence but otherwise I think we could find a reason or two for the market to proceed with its technical rally which has been sort of a stop-start one for the last couple of days. Maybe we get a cleaner run but for that I think we just need to stay away from crude bouncing back once again. But things look a bit sunnier for sure.

Asian Indices:

Asian space is not bad, Nikkei is up1.5% the, Hang Seng is up 620-points, yesterday the Hang Seng had lost 700 today it gained back all those points, China is up nearly 3%.  Crude is down today from more than USD 140/bbl all the way to USD 136/bbl in fact yesterday bounced back to USD 142/bbl and is now gone back to USD 136.5/bbl. That is the market, which is likely to help us the most this morning.

Relieved to see crude scale back:

It needs to stay there more importantly because crude has been giving us those intermediate pull downs and then keeps bouncing back. Of course some geopolitical news has come in and that is not too bad. Iran is making slightly more conciliatory noises and that is good news that should cool the market off a little bit. Now the bigger question is that, Is crude fizzling out, is this an intermediate top for crude or is it a big correction in a bull market that we are staring at? - If indeed crude were to cool down because both scenarios are possible.

We have gone to USD 145/bbl, we have hovered around there for a while and then some sharp cuts are coming in. So if indeed geopolitics continues to improve and crude continues to cool down there are lots of long positions, which might unwind in the crude market. That is one view and that is a view that every equity market participant would like to believe that crude has topped off in the near-term.

The other possibility for a market, which has been as strong a bull market as crude is that crude for USD 145/bbl gives you a meaningful correction maybe 20% correction from the top, takes it down to USD 115/bbl-USD120/bbl and then starts flying again and goes and takes out USD 170/bbl, so it could be either. You have noticed in equity markets last year how strong the pullbacks can be, you saw vicious corrections of 20%-25% but we were still in a bull market. The market corrected 25% and then went on to create a much bigger high. One cannot write off bull market so easily at the first sign of a crack and there cannot be any doubt that the crude is the mother of all bull markets that we have seen.

It is premature to write off crude. Is it welcome to see the crude price come off by USD 10/bbl? For sure it is but we need to see much more. My sense is that if crude only goes to USD 115/bbl-USD120/bbl and forms a base out there then that is good enough only for a smart pullback rally in India. That will not lead to resumption for a bull market trend at all. If crude has to really spark off a bull run then I think we need to get a clear panic in that market which brings it down to close to double digits because at USD 115-120/bbl crude, India probably still is in a bear market.

contd on pg 2..