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Indian Markets 10-Feb-2020: Will the rally continue?

Key points for the week (Indian Markets):

  • As anticipated in last week’s bulletin, the markets – NIFTY and BANKNIFTY rallied from the highlighted demand area

  • During the week the markets wiped out the losses from previous week that happened as a reaction to Coronavirus fears and disappointing annual budget

  • NIFTY has hit the daily demand area from where the pre-budget drop originated, while BANKNIFTY is close to higher demand area, which are multiple confluence points

  • The RBI interests were kept unchanged as expected, given the inflation weighs on economy. However the market is skeptical of RBI’s forecast on Indian GDP growth

The market rally during the week following the budget had no connection with the budget. As stated in our last week’s bulletin, the markets – NIFTY and BANKNIFTY – were entering significant demand areas that also had coincided with multiple other factors such as 200MA and a few Fibonacci levels. It was no surprise to see the rally for three consecutive trading sessions.

DAILY PRICE CHART FOR NIFTY 50 INDEX

As we see, NIFTY has rallied to the demand area near 12120 and has entirely cut through the area. It suggests that the supply at this region could have weakened. However this area also has multiple other factors coming together, which are followed by many players in the market. In addition to NIFTY testing 20MA and 50MA from below, we see these moving averages are looking to cross over. Finally, this supply area also matches with a key Fibonacci level retracement between significant pivot highs and lows. When multiple factors such as these come together with a notable supply area, we can expect some reaction to see the market being pushed downwards in near future.

DAILY PRICE CHART FOR BANKNIFTY INDEX

BANKNIFTY has completed the downward move following the head-and-shoulder pattern that we had highlighted last week. As predicted, that market also rallied during the week, clearing the earlier swing highs, only to reach near higher significant supply area.


In bigger picture (weekly), both these indices are still continuing inside the respective parallel channels, after having tested the bottoms walls during the week that ended on 1st February.


WEEKLY PRICE CHART FOR NIFTY 50 INDEX

WEEKLY PRICE CHART FOR NIFTYBANK INDEX

Among the fundamentals – as expected the RBI key interest rates remained unchanged. As the inflation had gone up surprisingly during past two-three months there was little opportunity for RBI to drop rates. However RBI’s prediction of 6% growth rate during 2020-21 was looked at with suspicion, as the market failed to make any significant move after the announcement on Thursday.

OUTLOOK AHEAD INDIA MARKETS


In the early part of the week we can expect some weakness in the markets. Given the rally during last week was sharp, there is no significant demand area to stop this fall until the NIFTY retests 11500. We expect the market to bounce again after testing this area which will also be close to the bottom wall of the parallel channel. BANKNIFTY is expected to follow similar trend.


The critical numbers – inflation data – that will be released on Wednesday may have impact on subsequent two days’ market movement, and we shall be eyeing them.