Key points for the week:
#NIFTY hit a two year low of 8555 on Friday 13th March, before it hit circuit breaker, but the market rallied 1680 points after trading resumed, posting largest intraday move ever
Market failed to follow through on that momentum on Monday, signaling that weakness is here to stay
#Coronavirus Pandemic fears weigh on global economies after most countries are shutting borders, and businesses have suffered
Many countries including US have declared emergency, and central banks have reduced interest rates – further adding to concerns over recovery
The price action of previous week was probably one in lifetime (until now). #NIFTY lost close to 2500 before recovering almost 1500 points by close. The momentum of breakdown was so high that the market cut through many significant demand zones from the past like a hot knife through butter. Before NIFTY pivoted at 8555 on Friday morning – a point close to the demand area from December 2016 –it had caused at least three structural failures.
WEEKLY PRICE CHART FOR NIFTY 50 INDEX
On Friday morning #NIFTY dropped to 8555 – more than 10% down from previous close, which is called the lower circuit breaker of the market. Per the exchange rules, the trading was halted for 45 minutes. However, when the trading resumed, the price action was very unexpected. NIFTY rallied to 10159 before closing at 9955, a little below the five-digit mark.
As seen in the weekly chart above – NIFTY’s demand area near 8000 is a significant one from where the next significant rally of 3000 points originated. As NIFTY hangs above this area, the buyers are hoping that trend reversal may happen soon.
DAILY PRICE CHART FOR NIFTY 50 INDEX
Yet, that enthusiasm in the market died on Monday morning, as the market was upset with the wider spread of Coronavirus pandemic. United States had declared emergency and in a surprise move FED brought rates to zero, signaling weakening economy. The market gapped down and traded in relatively narrow region on Monday, suggesting that the market would remain weak for now.
These levels are better visible on hourly chart.
INTRADAY PRICE CHART FOR NIFTY 50 INDEX (Hourly)
With this price action from past week, we now see many freshly formed supply areas in NIFTY all the way up to 12000. For the market to come back to uptrend again, NIFTY needs to convincingly rally above two significant supply areas, at 10400 and then at 11300. The 11300 is more significant one as it comes close to the prior structural pivot (that was breached three weeks ago confirming current downtrend). As the buyer sentiments remain weak, we do not expect the markets to reach those levels soon.
INDIA – Economic News
Among the key fundamental numbers published last week were current account figures, production numbers, inflation rate and trade balance. On all these accounts – India has done better, and in some far better than general expectations. The current account deficit for Q4’19 shrunk to $1.4B vs -13.5B forecasted, whereas industrial and manufacturing production outputs posted significantly better results. However all of this pretty much went unnoticed as the only talk of the market was Coronavirus.
INDIA ECONOMIC CALENDAR FOR PERIOD 9TH MARCH – 16TH MARCH
The Coronavirus has severe impact on global economy and it will last for many weeks or even months. Chinese production is shut for past two months, and freight market is shrinking. It has hit cross border trade across the globe and thus has created demand – supply imbalance. In other countries too, as the governments close their borders, enforce shutdown in impacted areas and ask people to work from home across countries the economic activities have significantly slowed down. In the industries where working from home is not an option, the activities will be reduced and the industries will be badly impacted. The most affected ones would be travel and tourism, aviation, automotive, retail, fashion, entertainment and so on. This could lead to many job losses as businesses will face liquidity crunch, and banking industry will feel the heat too. In many countries, out of fear people have raided grocery stores, creating artificial shortage of food, drinking water, sanitary products, baby products and medicines. All this will take some time to return to normalcy.
There is no clear sign that NIFTY has bottomed out. The downtrend is in place on daily and weekly timeframe, and Coronavirus fear will rule the market for next week or two. Coronavirus Pandemic will rule the world, and will affect the market going forward. While we do not know how far it would hurt, in NIFTY the demand area at 8000 will be critical support to the falling market.
As a counter measure many central banks would revert to interest rate drop, but that is likely to have limited effect in near future. Given the possibility of job losses across industries, we may be entering a secular bear market and possible state of deflation (many European bonds have negative yields already) – where people would hold on to cash than spend it. We hope that we are proven wrong, because if it happens to be true, it will take very long time to recover.