IGI Logo

Indian markets could open sharply lower, in line with the two day losses in the Asian markets and negative US markets on Wednesday - HDFC Securities

U.S. stock benchmarks finished lower for a second day Wednesday, with losses accelerating after the Federal Reserve’s July policy meeting minutes showed plans to reduce the central bank’s monetary support late this year. The minutes showed plans to consider reducing the central bank’s monthly asset purchases of $120 billion in Treasurys and mortgage-backed securities, likely by the end of the year, but they also suggested interest rates could still stay near zero for some time. The account of the July 27-28 meeting showed Fed officials largely expect that later this year they will reduce the central bank’s emergency monthly purchases of $120 billion of Treasury bonds and mortgage-backed securities.

Asian stocks slumped to their lowest levels this year and the dollar hit 10-month highs on Thursday as a double-whammy of worries about global growth and an end to central bank support drove nervous investors toward safety. Technology shares led a bounce for major U.S. stock indexes Thursday, though stocks more sensitive to the economic cycle remained under pressure as worries persisted about the potential impact on economic growth from the spread of the coronavirus delta variant.

The S&P 500 index and the Nasdaq Composite managed to eke out small gains on Thursday to halt a two day slide, but the Dow Jones Industrial Average booked its third straight drop, representing its longest bout of losses since the five-session period ended June 18. Signals from the Federal Reserve that it was preparing to cut back its stimulus efforts, drove stocks and bond yields lower Thursday.

First-time claims for U.S. unemployment benefits fell more than expected last week to 348,000, a pandemic low. Economists had expected 365,000 initial claims.

Goldman Sachs cut its US economic growth forecast for the current quarter to 5.5% from 9%, adding to the negative sentiment. The firm also sees higher inflation than expected for the rest of the year.

Asian stocks wavered early Friday as the delta virus strain and the prospect of reduced central bank stimulus weigh on the economic outlook, hurting commodities and bolstering the dollar. China’s one-year loan prime rate (LPR) and five-year LPR were both left unchanged at 3.85% and 4.65%, respectively, on Friday.

Nifty erased all the morning gains after reaching another new high and ended in the negative on Aug 18. In the process it broke a 4 day winning streak. At close the Nifty was down 45.8 points or 0.28% at 16568.8. Indian markets were the worst performers in the Asian region even as other markets ended largely in the positive.

Nifty has formed a bearish “Dark cloud cover” on daily charts on Aug 18. Even though it made a new high in the morning, the fact that contrary to the regional markets it failed to sustain gains and ended in the negative raises some concerns. Broader market continues to show a negative advance decline ratio for the fourth consecutive session. Nifty may correct following the bearish signal over the next 1-2 sessions but bounces from intra day lows cannot be ruled out.

Daily Technical View on Nifty

Observation: Markets ended lower on Wednesday after a positive morning session. The Nifty finally lost 45.8 points or 0.28% to close at 16,568.85. Broad market indices like the BSE Mid Cap index ended higher, thereby out performing the Sensex/Nifty. Market breadth was negative on the BSE/NSE.

Zooming into the 60 minute chart, we can see that the Nifty corrected from the highs and went into negative territory. The losses came after five consecutive sessions of gains. On the 15 min chart, the Nifty has closed below the 20 and 50 period MA indicating a weak bias for the very near term.

The Nifty could correct towards the 16359 levels once the immediate supports of 16495 are broken. On the daily chart, the Nifty continues to hold above a rising trend line that has held the important lows of the last few months. This implies that the index remains in an intermediate uptrend. The index also continues to trade above the 20 and 50 day SMA, which gives further evidence of an uptrend.

And recently, Nifty has broken out of the 15451-15962 trading range, which is an encouraging signal for the uptrend to continue. Upside target implications are at 17000. However, with the global markets and the Singapore Nifty showing weakness, the Nifty could correct towards the 16162 levels in the coming sessions. Our bearish bets are off if the Nifty manages to take out the 16750 levels.

Conclusion: With Nifty closing below the 20 and 50 period MA on the 15 min chart and with the global cues and Singapore Nifty showing weakness, Nifty could correct towards the 16359 levels once the immediate support of 16495 is broken.

On the larger daily timeframe, Nifty has broken out of the 15451-15962 trading range and also trades above the 20 and 50 day SMA, which gives further evidence of the uptrend to continue towards the 17000 levels. However, with the global markets and the Singapore Nifty showing weakness, the Nifty could correct towards the 16162 levels in the coming sessions. Our bearish bets are off if the Nifty manages to take out the 16750 levels.

Nifty – Daily Timeframe chart

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.hdfcsec.com/article/disclaimer-1795

SEBI Registration number is INZ000171337

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer