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Trading Weekly Outlook India Markets – 09-Dec-2019

Updated: Dec 10, 2019

Key points for trading (India Markets):


  • For the first time in recent past, the market had shown a couple of smoking signs, suggesting weakness during the week ending 6th November

  • Unlike in earlier Central Bank of India, RBI rate meetings, on 5th December RBI did not cut rates, and presented somewhat hawkish outlook reducing GDP forecast from 6.1% to 5% for FY 2019-20

  • #NIFTY Index candlestick chart is showing clear reversal on lower timeframe, forming lower high and lower low that failed earlier structural support point

  • A double top in #BANKNIFTY candlestick chart and head-and-shoulders pattern in NIFTY MIDCAP candlestick chart confirm that bears are getting stronger for now

As pointed last week (Weekly Outlook India Markets: NIFTY, BANK NIFTY, NIFTY INFRA) – though the market was posting a series of higher highs, the rallies were not strong enough and a possible reversal or significant correction was on the cards. Last week the statement from RBI just acted as the trigger. Central Bank refused to offer any further cuts in the REPO rate, and also lowered the GDP outlook from it’s earlier forecast of 6.1% to 5%.



DAILY CANDLESTICK CHART FOR NIFTY INDEX

NIFTY Daily Chart

The 11880 level is critical in NIFTY. Structural failure below that level will be significant and will lead market towards 11600 level. The demand zone at 11883 – 11916, from where the most recent rally originated before posting all time high at 12159, was tested on Friday. The market penetrated all the way in, close to the bottom of the zone, suggesting that this demand zone is getting weaker. One or two more retests to this zone may give way to further breakdown.


On lower time-frame (4H), we see a series of lower low and lower high, and that earlier structural pivot is broken. It suggests that the bears are picking strength, and the uptrend is broken on lower time-frame.


4 HOUR CANDLESTICK CHART FOR NIFTY

NIFTY 4 Hour Chart

#BANKNIFTY is showing a double top formation near its all time high. The rally in BANKNIFTY since beginning of October had been rather smooth, with the index posting higher highs and higher lows consistently. However that trend was broken with the pattern evolving last week.


DAILY CANDLESTICK CHART FOR BANKNIFTY

Daily Chart BANKNIFTY

NIFTY MIDCAP100 – another significant index that reflects health of midcap industries (and overall economy) is showing significant weakness. This market failed to make any all time high recently unlike the other two key indices shown above. Moreover when the NIFTY started showing weakness, the downfall in midcap was much sharper. We can see a head and shoulder pattern evolving in this market.


DAILY CANDLESTICK CHART FOR NIFTY MIDCAP100

NIFTYMIDCAP Daily Chart

Fundamental Analysis - Trading India Markets


Fundamentally, the market sentiments are weak. Among the key fundamental numbers published since November – most, if not all, are showing a bleak picture ahead, weighing on the stock market. The unemployment rate in India is rising. The key sectors that offer maximum employment – agriculture, industry and real estate – all are showing much lower growth compared to last year. The banks have signaled lower appetite among consumers to borrow, as well as their willingness to lend is also shrinking. Key PSUs such as MTNL and BSNL are offering VRS to reduce manpower significantly. Many large companies, including in IT sector are cutting jobs. These are clear signs that the demand of goods and services is shrinking drastically, and is creating recession like situation. While the government offered tax sops a couple of months ago, none of that really helps in boosting demand.



It is also putting a lot of pressure on government to step up its efforts in bringing more demand for goods and services in the market. Moreover, the government has little money to spend as its GST tax collection has reduced significantly. This secular downturn in economy is likely to stay for some time, and will weigh on the stock market.


What Next?


NIFTY is currently testing a significant price point, and will under downward pressure. Contrary to statements from ministry of finance (and also RBI), fundamentally the economy is showing significant weaknesses. In the near future, if the key level of 11880 in NIFTY gets broken, we shall see some strong breakdown and increased volatility in the market. The month of December may show a little slower market activity and participation. However much depends on the quarterly reports from businesses that will start coming in from January, which will set the tone for 2020.