What Goes Up Does Come Down!
‘Snakes and Ladders’ is a worldwide classic board game! The main aim of the game is to navigate your piece from start to finish, avoid the snakes and take shortcuts while going up the ladders. Similarly, the markets till last week were navigating and taking ladders to reclaim their all-important levels. However, as in the game when the player of the game reaches near the finish point and encounters the hiss of a vicious snake that makes him or her tumble down, the markets also faced a similar situation. At a time when everything looked like a cake-walk and the Nifty was racing or nearing its important psychological level of 11,800, it was bit by not one snake but a double whammy.
The first was in the form of re-emergence of skirmishes at the India-Chinese border. And secondly, SEBI declined to extend the September 1, 2020 time limit to implement new margin rules. As a result, the Nifty slipped down real fast and witnessed ‘Black Monday’ on D-Street. The Nifty recorded its highest single-day spread i.e. the difference between high and low since April 8, 2020. The spread of the day was a whopping 468 points, which was almost 3.5 times of the 10-day average. This led to the formation of a gigantic bearish bar, which is known as a bearish engulfing pattern in technical parlance. Its impact was so severe that it wiped out gains of almost the last six trading sessions.
It was a busy week on D-Street in terms of events and announcements. The GDP numbers were out as was the most awaited judgment by Supreme Court for AGR dues. There were no pleasant surprises on this front! Further, the Q1FY21 GDP contracted by a record 23.9 per cent on account of the lockdown measures adopted to combat the spread of the corona virus. The only silver lining in the dark cloud was agriculture which reported a growth of 3.4 per cent in the quarter.
The Supreme Court in its much awaited judgment of the AGR case ordered telecom companies to pay 10 per cent of the balance dues before March 2021 while the remaining dues can be paid over 10 years. This decision has provided much-needed clarity to the Government of India on how and when it will receive the balance payment and at the same time it has also removed an overhang on telecom stocks.
Meanwhile, in the US, after a fabulous performance in August, the stocks continued to scale new heights at the start of September. The Nasdaq and the S & P 500 have registered fresh record high closing with Nasdaq closing above the important psychological mark of 12,000 for the first time ever while Dow has managed to reclaim its 29,000 mark, which is now within striking distance from its all-time high level. The key catalyst for this move is that the incoming data continues to impress as August ISM manufacturing rose to 56 from 54.2 in July and secondly, the Centre for Disease Control and Prevention (CDC) has asked states to prepare for vaccine distribution by early November.
Coming back to the Indian markets, after forming a bottom in March 2020, the markets have continued to make higher tops and higher bottoms. Many of us have been trying to find a reversal in the market and are waiting for that big correction which has remained elusive. But such has been the force of the current ‘bull run’ that every time one gets confident about the market, it is likely to reverse its trend it has been knocked with a strong punch on the jaw as follow-up selling has been missing.
In the current situation as well, after a strong ‘bearish bar’ on Monday the follow-up selling is missing and at the same time the broader markets continue to flourish. Hence, it’s important not fight the trend and be with the trend as long as we don’t get any conclusive confirmation of price action that it now beginning to bend. For the bulls, the level of 11,550-11,600 is a wall of resistance and on the downside, the level of 11,300 is an important support level for the next week.
