New Virus Strain Continues to Impact the Market

Due to the severe fall that was witnessed on the Indian bourses on Friday and Monday, even the slightest hopes that the market participants had for the Santa rally vanished into thin air as the benchmark NSE Nifty 50 index slipped below its prior swing low. But Santa Claus is known for springing surprises and so the rally which emerged on D-Street took everyone by surprise and interestingly, the rally continued for three straight sessions amid strong global cues and a slew of upbeat economic data from the US. Q3 GDP was revised higher in the latest estimates from the Bureau of Economic Analysis to show a 2.3 per cent annualised increase in economic activity. 

Furthermore, consumer confidence jumped more than expected this month despite the pandemic’s highly contagious Omicron variant. Also, reports from Reuters indicate that ‘White House might resume talks on massive spending and the climate change bill with a holdout senator.’ There is one interesting insight we would like to share with you, that the sharp fall of 3.5 per cent in just two days and breach of prior swing low of November. Market participants viewed it as a fresh breakdown and it is a commonly known fact that breakouts or breakdowns fail more often than not when they are against the primary trend of the market. 

These false breakdowns are short-lived, and when the bounce-back happens in the main direction, it is quite a sharp and quick one, and this is exactly what we witnessed. The Nifty has now moved nearly 4 per cent from the lows of December 20 but with this strong rebound it is heading towards an overhead resistance area which stands in the form of 20 DMA (17,149). Until and unless Nifty convincingly closes above this level, we would advise you to exercise caution and follow prudent position sizing.

These false breakdowns are short-lived, and when the bounce-back happens in the main direction, it is quite a sharp and quick one, and this is exactly what we witnessed. The Nifty has now moved nearly 4 per cent from the lows of December 20 but with this strong rebound it is heading towards an overhead resistance area which stands in the form of 20 DMA (17,149). Until and unless Nifty convincingly closes above this level, we would advise you to exercise caution and follow prudent position sizing.gap area of December 20. Hence, the zone of 35,328-35,535 is likely to act as an immediate hurdle on the upside. Meanwhile, there is one sectoral index which has made a strong comeback during the week, and that is Nifty Pharma.

Nifty Pharma on a WTD basis is up by over 3 per cent and on the weekly chart is forming a bullish engulfing-like pattern at the lower band of the Bollinger Band. Also, the ratio chart of Nifty Pharma versus Nifty shows a breakout, suggesting outperformance of the pharmaceutical space in the near term. Meanwhile, there is a lot of concern related to sustained selling from FIIs. FIIs have turned net sellers to the tune of Rs 32,289.90 crore in the month of December, while on other hand, the selling pressure from the FIIs have been somewhat absorbed by the DIIs as they have turned net buyers to the tune of Rs 25,804.26 crore.

It is known fact most of the FIIs tend to lie low during the Christmas holiday season and so it may eventually slow down and we are already seeing the intensity of their selling decreasing as on December 21 and 22 they have sold to the tune of Rs 1,209.82 crore and Rs 827.26 crore, respectively. Going forward, in the absence of any major domestic cues, the near term direction of the market will be dictated by developments around Omicron, rupee movement and global cues. Omicron seems to be an increasing risk worldwide as media reports have highlighted that the new variant has now spread to 89 countries, including India.

So, market participants would keenly watch the spread of the Omicron for the next few weeks. That said, one may take a sigh of relief as health regulators in the United States have authorised the first oral pill against the virus and secondly, a trio of studies of preliminary data from Scotland, Imperial College, London and South Africa have shown that the Omicron strain may be less likely to land patients in the hospital as compared to the Delta strain. Only time will tell whether this new variant will cause havoc or it will just pass by like any flu. Till then, enjoy your Christmas!