Is it retracement or Reversal?
It indeed was turning out to be a pleasant investing experience with the bulls achieving one milestone after another in quick succession. But every high that the market reached made the participants’ blood run cold. They witnessed this movement with bated breath since it has been a known fact that the current Bull Run in the Indian markets is distanced from ground reality. The markets, like short-distance runners, had paced themselves too fast and everyone feared that they would soon run out of steam. It is this fear of the unknown that has kept market participants on the edge of their seats, and this was clearly visible in the fierce fall of Wednesday.
The Nifty recorded its worst day after October 15, 2020 and formed a bearish engulfing pattern on the daily chart. Further, the stock market’s fear gauge, India VIX, jumped as much as 10 per cent on Wednesday. Meanwhile, in the West, stocks sailed through hurdles of rising corona virus cases and fresh restrictions initiated by governments to combat this deadly increase. There is hope though that a vaccine may soon be available after encouraging late-stage trial results from Oxford-AstraZeneca.
Further, clarity emerged on the political front as the formal transition of power to Joe Biden now begins in the US with Donald Trump have conceded defeat. This helped the Dow Jones to climb for the first time ever above the 30,000 mark and the technology-heavy Nasdaq also recorded an all-time high. Coming to the Indian markets, they would take their cues from economic data which is scheduled to release in the coming days. One of the key economic figures which everyone is looking forward is the GDP for the July- September quarter which will be released on Friday.
After a historic contraction in the July-ended quarter, the mean projection indicates that the GDP could witness a contraction of close to 10 per cent with Bank of America predicting a contraction of 7.8 per cent and NCAER predicting a decline of 12.6 per cent. We believe that just as the corporate sector’s performance during the quarter surprised many, it is quite possible that the GDP data would also have some surprises in store, following which we might see revision in the outlook. If you recall, many foreign brokerage houses revised their targets on the headline indices after this encouraging corporate performance.
With the markets at peak, the value of equity-holding of Life Insurance Corporation (LIC) has climbed to a record high of around USD 86 billion, surpassing its previous high of USD 84 billion recorded in March 2018, as reported by a business tabloid. At the end of the September quarter, LIC holding in the top 200 universe stood at USD 77 billion. As the markets have recorded close to 12 per cent returns from this period, the tabloid has estimated a value of USD 86 billion for its total portfolio.
Another news report that has been gaining the attention of a lot of traders is the one related to the recent circular from the Securities and Exchange Board of India (SEBI) which has withdrawn a proposal to increase the margin requirement for non-futures and options (F&O) stocks in the cash market. In the wake of high volatility in the markets, SEBI had increased the margin requirement to 40 per cent in a phased manner. This might come as relief for traders who trade in non-F&O stocks; hence, in the coming days it would be interesting to keep a watch on the price action in the non F&O stocks.
On the daily chart of the Nifty, there is formation of a bearish engulfing pattern. Interestingly, since the low of March, this is not the first instance where a swing high has been made with such a pattern. There have been multiple occasions when a bearish engulfing pattern has emerged at a swing high and also where the opening is at a higher level and closing at a lower level. In two of three instances where the bearish engulfing pattern was formed at a swing high, the price did not breach the low in the following session as it formed an inside bar and witnessed a pullback trade. However, in the current instance we saw a break low of bearish engulfing pattern on intra-day basis; however, the close was near the day’s high. Immediate support for the index is placed in the range of 12,740-12,800.
