Defending 11,000-mark is crucial for Nifty!
The last one and a half week has certainly been hectic for D-Street, in which the headline index saw wild swings. All the while, we have been seeing major setbacks, intraday reversal and additional sell-offs. If you are wondering what the cause of these extravagant moves is, then you must know that the rapid spread of the deadly Coronavirus/COVID-19, which has now sickened almost 90,000 individuals worldwide, has even claimed more than 3,000 lives. Health officials across the globe are finding it difficult to contain the virus. Further, India, which was so far immune has too been recently gripped by the virus.
Amidst feeling of doom and gloom, the service sector continued to usher in heydays as widely tracked IHS Markit India Services Business Activity Index rose from 55.5 in January to 57.5 in February. In PMI phraseology, the 50-mark threshold separates expansion from contraction. Further the high volatility, which had been a talk of the town, is caused due to the ebb and the flow of Coronavirus news, which seems to be cooling off from the higher levels, is indicating some stability for domestic markets.
On Wall Street, over the past week or so, volatility has recaptured authority. Massive moves in US markets have become a norm lately. One of the key catalysts which laid the red carpet for high volatility was the unscheduled announcement of US Fed, which lowered its target range for Fed funds rate by 50 basis points, was broadly anticipated but not until the regularly scheduled meeting in March.
Wild swings were seen post the announcement as the market participants feared that the emergency rate cut by US Fed also signals that US economy could be in a grave problem because of the virus outbreak. At the same time, some investors were concerned that the only thing the rate cut can do, is to help lower down borrowing costs. However, the cost of the fund is not the cause of worry now, as the corporates are facing difficulties in obtaining raw materials and components in an attempt to curb production. Fed’s rate cuts are not going to solve the supply chain issue. And, this fear was clearly reflected in US-treasury yield, which fell below one per cent for the first time ever.
Meanwhile, toning with US Fed action, IMF said that it would unleash an aid of $50 billion to help combat Coronavirus. IMF would like to see funds used first to bolster health-care systems and then for targeted fiscal stimulus programs and help liquidity, Director Kristalina Georgieva said.
The pattern analysis show that Nifty trades below all its key moving averages but at the same time, Nifty is finding its feet near and respecting the double bottom pattern support that exists in the zone of 11,020-11,100. Also, supportive efforts have been emerging at 78 per cent retracement of the entire up move of September low to all-time high level. At present, the index appears to be in consolidation of a broad range of 11,036 to 11,433 and going ahead, any break above or below this range, would give a clear direction to the index. Currently, the chemicals and pharmaceuticals stocks are in demand and likely to be on traders and investors’ radar. It is essential to note that Nifty is still not entirely out of the woods yet as it has all the risks of facing a selling pressure again at higher levels. It would be wise not to get all excited in a shortcovering led move and start calling a bottom and buying aggressively. Yes, some initial evidence is there on the charts of an important support but buy slow and staggered. The confirmation of strength would only be after Nifty closes above 11,433 levels along with the broad participation of stocks.
