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Wednesday, April 30, 2008
Today's Pick - Hindustan Zinc
We recommend a sell in Hindustan Zinc from a short-term perspective. It is visible from the charts of Hindustan Zinc that it has been on a long-term downtrend, since its 52-week high of Rs 969 marked in October 2007. However, in early April 2008, the stock found support at around Rs 500 level and then it went through a short-term corrective rally. We see that the stock’s corrective rally has encountered twin resistance at around Rs 690 levels (a key resistance as wel l as the long-term down trendline that coincides around this level) on April 29 and reversed direction, forming a bearish engulfing pattern near the resistance level. The daily momentum indicator has begun to decline after touching the overbought territory in recent times. Moreover, the long-term down trendline of the stock is still in place. We are bearish on the stock in the short-term. We expect the stock’s long-term downtrend to prolong to our target price level of Rs 580 in the upcoming trading sessions. Investor with short-term perspective can sell the stock while keeping the stop-loss at Rs 708 level.
A dull day for precious metals
Slipping crude price and strength in dollar dampen appetite for commodities
Bullion metals registered sharp drop today, Tuesday, 29 April, 2008 after crude oil prices eased by more than $3/barrel and after the dollar rallied against its rivals. Last week, dollar rose strongly against its rivals thereby putting pressure on precious metal prices. On the other hand, rising energy cost affects prices of bullion metals as a hedge against inflation. Silver prices also fell for the day.
Comex Gold for June delivery fell $18.7 (2.1%) to close at $876.8 ounce on the New York Mercantile Exchange. The price earlier touched $873.60, the lowest for a most-active contract in almost last three months. Last week, gold prices lost $20(2.8%) against previous week’s close. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.
This year, gold prices have gained 5% for the till date against a 8.5% drop for the dollar against the euro. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
Comex Silver futures for July delivery fell 48.3 cents (2.8%) to $16.64 an ounce. Silver has gained 10.8% in 2008 till date. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
In the energy market today, crude oil fell more than $3 a barrel, the biggest decline in four weeks, after BP restarted a North Sea oil pipeline and the dollar strengthened, reducing the appeal of commodities to investors.
In the currency market today, the U.S. currency headed for its first monthly advance this year against the euro as traders increased bets the Fed will stop lowering bank-borrowing costs after cutting the benchmark federal funds rate by 25 basis points tomorrow. The Federal Reserve's interest-rate meeting begins Tuesday afternoon. The statement will be released on Wednesday at 2:15 p.m. E.T. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, gained 0.3% to 72.83.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.
Gold, as a dollar-denominated commodity, suffers from dollar strength. On the contrary, gold prices rise with falling dollar as inflationary concerns boosts the metal's appeal as an inflation hedge.
The Fed has reduced its benchmark interest rate by 3 percentage points to 2.25 percent since last September as a housing slump and credit squeeze threatened to push the economy into a recession. Since last September, Fed has axed interest rates six times. The ECB has kept rates unchanged at 4% since June. Traders are looking forward to Fed’s decision on interest rates in its next forthcoming meeting tomorrow.
Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. The Fed reduced federal funds rate three times in FY 2007. In 2006, silver had jumped 46% while gold gained 23%. Gold has tripled in five years as investment demand has soared and mine supplies have remained low.
At the MCX, gold prices for June delivery closed lower by Rs 136 (1.2%) at Rs 11,479 per 10 grams. Prices rose to a high of Rs 11,612 per 10 grams and fell to a low of Rs 11,465 per 10 grams during the day’s trading.
At the MCX, silver prices for May delivery closed Rs 321 (1.4%) lower at Rs 22,142/Kg. Prices opened at Rs 22,385/kg and fell to a low of Rs 22,051/Kg during the day’s trading.
Crude witnesses a deep plunge
Prices slip by more than $3 as supply related concerns ease
Crude prices dropped by more than $3 today, Tuesday, 29 April, as supply concerns eased. BP restarted a North Sea oil pipeline and the dollar strengthened, reducing the appeal of commodities to investors. Gloomy economic news in the U.S. and forecasts that U.S. crude inventories have gained for a second week also weighed on Tuesday's oil prices. Yesterday, prices had touched an all time high of $119.93 during intra day trading.
Crude-oil futures for light sweet crude for June delivery closed at $115.63/barrel (lower by $3.12/barrel or 2.6%) on the New York Mercantile Exchange. It fell to an intraday low of $114.95 earlier. For the year, crude is up by 19.4% till date. Oil increased 77% in the past year as supply failed to keep up with surging demand in China, India and the Middle East.
As per BP, it expects to resume normal throughput at its 700,000 barrel-a-day Forties crude oil pipeline system in the North Sea within several days. The company closed the Forties Pipeline System, carrying 40% of the U.K.'s oil production, after a strike at the Grangemouth refinery in Scotland cut power supplies.
In the currency market today, the U.S. currency headed for its first monthly advance this year against the euro as traders increased bets the Fed will stop lowering bank-borrowing costs after cutting the benchmark federal funds rate by 25 basis points tomorrow. The Federal Reserve's interest-rate meeting begins Tuesday afternoon. The statement will be released on Wednesday at 2:15 p.m. E.T. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, gained 0.3% to 72.83.
Brent crude oil for June settlement today fell $3.31 (2.8%) to $113.43 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.
Natural gas advances 45% this year
Natural gas declined as crude oil fell from a record and the dollar strengthened against the euro. Gas for June delivery fell 48.7 cents (4.3%) to settle at $10.842 per million British thermal units,
Against this backdrop, June reformulated gasoline fell 9.15 cents to $2.9392 a gallon and June heating oil dropped 5.23 cents to $3.2465 a gallon.
Traders anticipated today that an Energy Department report tomorrow will probably show that U.S. crude-oil supplies advanced 950,000 barrels in the week ended 25 April.
At the pump at USA, retail regular gas averaged $3.607 a gallon, a new record high. Average gas prices in San Francisco surpassed $4 a gallon for the first time.
Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.
At the MCX, crude oil for May delivery closed at Rs 4,664/barrel, lower by Rs 94 (1.9%) against previous day’s close. Natural gas for July delivery closed at Rs 441.2/mmbtu, lower by Rs 16.4/mmbtu (3.6%).
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