Corporate Earnings Announcement: Keep Calm And Trade On!
“Price action analysis reveals the foot print of smart money, by following it we gain an edge,” Nial Fuller. These golden words by Nial Fuller, clearly indicates that market participants, who understand price action, clearly have an edge. And, if you remember in our last editorial, we mentioned that momentum is waning and the headline indices may take a breather, but action will continue in the broader markets. This is actually what we have witnessed in the last three to four trading sessions wherein, the headline indices entered into a corrective phase while, the broader markets have seen resilience. At the opening bell, on Monday, Nifty registered an all-time high of 12,430 and on the same day, it closed near the lowest point of the day. In technical phraseology, it made what is known as the complete engulfing candlestick pattern on the daily charts. This monstrous bearish candlestick pattern completely engulfed the previous six-day trading range. However, it did not stop here, as bears were in no mood to spare and came in a rush for vengeance. As a result, follow-up selling was seen in the index and it recorded a fall of about 343 points from the all-time high registered on January 20 in just three trading sessions.
Technically, if we notice that since the up move from October 2019, the index has not corrected more than 365 points or about 3 per cent from the swing highs and time-wise, corrections have not lasted for more than three consecutive sessions. In the current context, the index has already witnessed a correction of 343 points from recent highs over the past three sessions and it had approached towards its crucial support area, which is January 9 gap area.
On the domestic front, during the week, the news which grasped eyeballs was the International Monetary Fund (IMF), which lowered India’s economic growth forecast to 4.8 per cent for this fiscal year, citing the crisis in the nonbanking financial sector and weak rural demand. While, the Q3 quarterly earnings which have been reported till date, were by and large unenthusiastic. Index pivotal like Reliance Industries, HDFC Bank, Axis Bank and Kotak Bank has failed to match its estimates predicted by the Street. Market participants are now seen getting sceptical of descent in asset quality of banks. This clearly stirs economy health worry amidst higher than expected asset quality woes into the December quarter of 2019.
The risk-off sentiments in the Asian equities splash over onto Wall Street after US Centres for Disease Control and Prevention announced the first case of the corona virus within US. The outbreak of coronavirus in China has led to concerns over a slowdown in the nation’s economy and resulted into pressure on oil and industrial metal prices on the back of potentially weaker demand for the commodities. The emergence of a new coronavirus is reviving memories of the severe acute respiratory syndrome epidemic, known as SARS, is anything to go by, the overall impact of the virus outbreak, may be modest and short-lived on the global economy, as well as on the commodities sector. Chinese government has taken serious action to contain the respiratory virus, including cutting off travel in and out of the city of Wuhan, where coronavirus originated, delivered some relief that the outbreak would be restricted and not result in a plague that may distress global economic growth.
In the coming week, we foresee the consolidation and corrective bias to continue in the stock markets, given that the indices are trading at stretched valuations and earnings season, have failed to provide the much-needed gush to stock markets. Further, the earnings announcement from corporates is likely to induce stock specific volatility in the coming week. In short, the mantra for the week would be to keep calm. Do not be in a hurry and play safe!
