The Federal Reserve’s negative tone and statement on US Economy triggered a global sell-off across the Markets and Indian Markets too were not spared as it ended the day with steep fall of 209.60 points NIFTY while adding huge amount of short positions and open interest. The Markets opened on a gap down note following global weakness despite supportive technicals. It made a feeble attempt to recover but in the second half of the session, fresh selling pressure gripped the Markets as it went on to give the day’s low of 4907.05. It showed no signs of recovery of whatsoever nature and finally ended the day at 4923.65, posting a deep cut of 209.60 points or 4.08%.
On the Derivative front, NIFTY September futures added massive 2251950 shares or 10.34% in Open Interest and traded at 6-point discount signifying creation of short positions in the Markets.
The “So-called” Operation Twist of the Federal Reserve did more bad than good when it announced plans to try to push long-term interest rates down by purchasing $400 billion in long-term Treasury securities with proceeds from the sale of short-term government debt, saying the economy clearly needed help. By reducing the supply of long-term Treasuries, the Fed intends to force investors to accept lower rates of return on the ultra-safe securities, or to move their money into a wide range of riskier investments that could do more to promote growth. The Fed Reserve also said that it would resume direct efforts to help the mortgage market by reinvesting the proceeds of its existing investments in mortgage-backed securities into new mortgage-backed securities, rather than putting the money in Treasuries.
At MyMoneyPlant.co.in, it has been our tradition to come out with “Special Edition” of Daily Market Trend Guide. As have always done successfully in the past, we have always endeavored to present correct analysis and picture of the happenings in such trying and difficult times.
History suggests that Indian Markets too have been effected by what is called “External Factors” but the effect that it sustained always remained temporary and in fact always created opportunities for smart investors to pick up stocks at much lower levels.
COMING TO TODAY’S MARKET, similar story is taking shape again at the domestic front. Today, we can expect the Markets to open on a moderately negative note and look for directions, but technicals suggest that it is likely to pose some resilience against global weakness and may not remain weaker apart from a day or two, presenting a great opportunity to make selective investments.
It is important to note that even with the single largest decline since 2009, the Markets have not shown any structural breach on the Daily Charts. With negative opening expected today, the levels of 4880 and 4855 are expected to act as supports. It is very important to note at this juncture that the Markets lead indicators have shows very clear signs of the Markets offering resilience to the global weakness as detailed as under:
First of all, the Markets have added huge Open Interest as high as 20-22% across Stock Futures and over 11% in NIFTY Futures signifying huge creation of Open Interest. Further to this, the RSI – Relative Strength Index on the Daily Charts is 41.6814 and it does not show any failure swing. In fact, while the NIFTY has set a new 14-day low, the RSI has not and this is BULLISH DIVERGENCE.
Also important to note that the Daily MACD has continued to trade above its signal line in spite of sharp fall and is currently bullish.
It is important to understand the fact that with the Western Markets remaining in current situations, the Emerging Markets are likely to see inflows again and India too is stand to gain, especially at current valuations, and with other indicators remaining in place.
Having said this, it is strongly advised at as always, after 2-3 days of weakness, the Indian Markets decouples itself as everything remains intact at the domestic front and even food inflation has reported a sharp dip yesterday which has gone unnoticed. Thus, like as always happened in the past, we are very much likely to see stability returning to the Markets, if not today, then in a day or two.
All and all, it is strongly advised to not to panic in current situation but use the current line of events to pick up stock specific opportunities in a highly selective manner. It is also advised to avoid short positions as there are huge number of short reported in the system which can trigger short covering, again if not today than in a day or two. Cautious optimism is advised for today.
Consulting Technical Analyst,