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India Markets 03-Feb-2020: Budget broke the patience, more gloom ahead?

Key points for the week (India Markets):


  • The disappointing budget presented on Saturday, 1st February damaged investors’, common taxpayers’ and industry’s confidence to take NIFTY down by 300 points.

  • Coronavirus played its part during the week to take the market down owing to China’s growth concerns.

  • The weakness in all global markets weighs on Indian markets too as a lot of trade and business activities are expected to slow down.

  • In #NIFTY and #BANKNIFTY we now have a convincing structural failure on daily time-frame.


In weekly time-frame the two indices are testing the bottom of parallel channel. While the uptrend is intact, the price action in next two weeks will confirm further direction.

On Saturday 1st February, the stock markets were open as a special case as the Indian budget was being presented. As the budget failed to impress the industry, funds, investors and taxpayers alike, NIFTY lost over 300 points, while BANKNIFTY lost more than 1000 points.


DAILY PRICE CHART FOR NIFTY 50 INDEX


DAILY PRICE CHART FOR BANKNIFTY INDEX


The price action on Saturday caused significant structural failure in NIFTY and BANKNIFTY. Both these markets broke down with momentum below earlier swing lows (marked with blue arrows in the respective charts above). In BANKNIFTY we see a head-and-shoulder pattern formation, where the shoulder line was broken on Saturday. NIFTY has hit 200 SMA, and global investors would be eyeing how it reacts to that price point.



However, we also notice that both these markets are approaching demand areas underneath. In the respective demand areas, there are specific price points - confluence of various Fibonacci levels – which would be followed by many traders and investors. While Fib levels in isolation cannot be trusted, when we see confluence in a demand or supply area, we pay close attention to those price points. In the above figures we have identified those confluence ranges within the respective demand areas. It is possible to see some bounce from these points, and nature of the bounce will tell whether the momentum would continue downwards or the market will continue upward movement.


On a larger time-frame (weekly), both the markets are in uptrend, moving in parallel channels. At this time NIFTY and BANKNIFTY are trying to test the bottom of the respective channels, which are close to the stated demand areas in daily charts. In the last week’s bulletin we had highlighted the bottom walls of these channels and mentioned that the markets would be moving down to test those limits.


WEEKLY PRICE CHART FOR NIFTY 50 INDEX

WEEKLY PRICE CHART FOR NIFTYBANK INDEX


While technical analysis of markets does not predict the market moves with confidence, it helps us identify high probability reversal points and set expectations about price action movements. When we see confluences like those seen above, we can prepare for possible outcomes. If the stated demand areas hold and we see markets bouncing, investors can look for long opportunities. If the markets break below those demand areas, investors may consider bearish strategies.



OUTLOOK AHEAD INDIA MARKETS


As highlighted above, we are at a critical demand areas which would suggest whether the markets would continue in the bullish upward channel, or the bull markets would end soon. NIFTY and BANKNIFTY both had a very rough week and are stretched downward, coming close to a significant demand area which has multiple confluences on daily and weekly time-frame. This suggests that we may see some bounce for now. However the nature and strength of the bounce would tell whether the bear market would resume or we shall enter bear market shortly.


Looking at wider global picture – Chinese Coronovirus outbreak would continue to threaten global trade, and thereby global financial markets. We hope that the virus outbreak is contained and normalcy is restored within coming weeks. However effect of the outbreak will weigh on the markets.