Key points for the week:
Markets globally were completely consumed by Coronavirus Pandemic, and continued freefall.
#NIFTY had a small rally on Friday, but it appears to be a bear market (short covering) rally, and is not likely to last.
While India observed ‘Janta Curfew’ on 22nd March, many states and districts have called for lockdown until 31st March. It’s economic burden is yet to be assessed, but is expected to be at least several hundreds of billions of dollars.
India FM is expected to announce economic package for Coronavirus impact
Every week the market has been crashing further, making the previous week’s price action look like cakewalk. The volatility had been unprecedented, and there is no sign of momentum slowing down.
As India fights against spread of Coronavirus, four states have already shut their borders and imposed lockdown on its citizens. In the remaining states over 70 districts have imposed lockdown as well, keeping only essential services functioning. Many people are losing or have lost jobs. Businesses are suffering badly and some may have to fold up if they remain closed for longer time. All this is expected to hit the banking system and will increase their non-performing assets in coming weeks.
#NIFTY had continued its freefall. The price action shows similar pattern as previous week, showing rally on final day to form a long tail on weekly chart. NIFTY entered the demand zone that was formed in December 2016. However this long tail remains only until half of the total weekly bar, suggesting that the bears are still very strong. The rally on last day of the week is usually a short covering rally, and has limited effect on the market.
WEEKLY PRICE CHART FOR #NIFTY 50 INDEX
Given that NIFTY has fully penetrated the 8000 demand area, it stands nullified. The rally we see is not to be trusted unless on the weekly chart we see market trading above last week’s high. If the market breaks down now (and it is likely) the next level can be as low as 7000 – 7200.
On daily chart the picture appears no different. The supply zone identified at 10000 is a significant one, as it now has a Fibonacci confluence in addition to being a significant price level. For sustainable uptrend significant new demand has to come in which, at this time appears a few months away.
DAILY PRICE CHART FOR #NIFTY 50 INDEX
Interestingly – we see for the first time in six – seven weeks that we had two consecutive green days. Prior to Friday, it happened in the first week of February. This has been the state of the market.
The hourly chart shows specific price levels from where a rally, if happened would find reversal points.
INTRADAY PRICE CHART FOR NIFTY 50 INDEX (Hourly)
For last two days the market retraced upwards and this move appears in a parallel channel on hourly chart. A break below this channel would take the market significantly lower. A little rally from current level would take the market to 9200 which is also a significant supply area and may cause the market to drop. The 10000 level of course will be the next hard ceiling that will be play later. Overall – things appear very weak for NIFTY.
As we write, we see that the CNX NIFTY futures were trading 12% low in Singapore before the market opened in India. Enough said. We may see a circuit breaker at open.
INDIA – Economic News
There is no news other than Coronavirus and its impact. Businesses, banks, people – all are worried. Most of the country has announced lockdown until 31st March, with a possibility of extending it further. The passenger train service across the country is stopped to limit spread of virus through people movement. However the number of impacted people is doubling every three days and government is worried given its limitation on healthcare services and COVID test kits. A significant package is expected from the government that would help businesses remain liquid for some time.
Very weak is the only thing we can say. And the floor is not visible yet. We are looking at 7000 – 7200 level in NIFTY as the economy (or all economies in the world) are bleeding heavily. The path to recovery is going to be very long and will take months, or maybe years. Whenever we see rallies, it is better to reduce long exposure if investors have not done already, because a lot of investors’ wealth is expected to be destroyed in coming weeks.