Ashish Nambisan : Last week it was mentioned “Nifty50 seems to build up the strength after forming a short-term bottom at 21964. And now it is keeping on adding one by one more feathers to its cap. Well let me club all the things together so that I can explain the overall picture of Nifty50. Firstly, it was the long-term average of PE (at 22000) then the macro data was the second feather (at 22500) and the third was a bullish breakout of the wedge (at 23100) and now the fourth is “The Penant”. Therefore, considering all the facts and looking at the overall picture it seems that despite all the noise of tariffs and slowdown, my target for the Nifty50 remains 24700/26200 which means a 11% jump from the current level. Hence, to invalidate this bullish viewpoint Nifty50 has to drop below the short-term bottom of 21964.
Trading Range given for last week: 23050/22800 will act as crucial support levels while tough hurdles are seen at 23900/24000. Intermediate supports are seen at 23300/23200. Those who have carried short positions should book profits near the support areas mentioned above, as my stance for the Nifty overall remains bullish till it doesn’t fulfil the below conditions; a) closing below the channel at 22900, b) breaking below 22700. So those who are holding bearish positions my suggestion to them would be to sell on rallies near the hurdles of 23900/24000 and exiting the shorts near the mentioned supports for profit booking or exiting shorts completely above 24000.
What happened next? Nifty50 on Monday 1st April formed a low at 23136.4 which was 64 points below the intermediary support of 23200 and till Thursday it sustained this bottom very well. The crucial supports mentioned were 23050/22800 and the low formed was 22857 exactly near the support of 22800. Now my conditions were that if Nifty50 breaks any of the 2 rules viz (a) Closing below the channel of 22900 (b) breaking below 22700. Well, to my surprise Nifty50 closed exactly near 22900. Though Nifty50 closed at 22915 but the channel upside breakout has been breached and has once again settled inside the falling channel with a close. Now what should be done ahead? The situation has become tricky now as 2 curious phenomena are at play: one strange condition journeys North, while its counterpart travels in the opposite direction, towards the South. What I mean here is Nifty50’s close inside the channel is disheartening for the bulls but another bullish pattern emerged and came into existence which is knowns as “Inverted Head & Shoulder” pattern. Even though it’s a small formation in chart but has mighty bullish implications. I shall discuss more on this when writing the conclusion on Nifty50. Meanwhile let’s understand and look into the global picture.
Global Synopsis
*Italian Economy Minister Giancarlo Giorgetti warned against the imposition of retaliatory tariffs on the United States in response to President Trump’s announcement of weeping tariffs on trade partners. He added that we should avoid a policy of counter tariffs as that could damage everyone including us. (Reuters)
*China hits U.S. with 34% tariff in retaliation on all imports effective from April 10 as per Xinhua News Agency. It also placed curbs on the export of some rare earths to the U.S. This was in response to a similar 34% tariff imposed by U.S. on Chinese goods, escalating the ongoing tariff war between the two nations. The U.S. new levy on Chinese goods, is in addition to the 20% tariff previously announced, for a total of 54%. The purpose of the Chinese government’s implementation of export controls on relevant items in accordance with the law is to better safeguard national security and interests and to fulfil international obligations such as non-proliferation. (China commerce ministry)
*Taiwan’s government announced T$88 billion ($2.67 billion) worth of financial help for companies and industries to deal with the impact of U.S. tariffs as it runs a large trade surplus with U.S. and is facing a 32% duty on its products. However, the tariffs do not apply to semiconductors which remains a major Taiwanese export. At a conference in Taipei, Cho Jung-tai reiterated that the government regarded the tariffs as unreasonable, saying it would provide T$88 billion to help companies affected, with the electronics and steel sectors among those worst impacted adding it’s the government’s responsibility to continue to manage and control the risk and understand the needs of the industry. Finance Minister Chuang Tsui-yun, speaking next to Cho, said the government would also provide an interest rate reduction on loans for exporters worth T$200 billion.
*Japan could lose $17 billion in car export potential in U.S. following the Trump’s 25% tariffs on the automotive sector. Japan’s automotive sector comprises 20% of the country’s total exports and the majority of exports are headed to the U.S. market. The tariffs cover more than $460 billion worth of imports of vehicles and auto parts annually as per (Reuters).
*Vietnam will impose a temporary anti-dumping levy of up to 37.13% on some galvanised steel products originating from China, and up to 15.67% for some products from South Kora, showed a trade ministry statement. The tariffs will take effect from April 16 and be in place for 120 days, the statement showed.
*Economists at UBS, said that U.S. could enter ‘a meaningful recession’ followed by more stock market losses if current tariff rates are not reduced within the next three to six months. The bank also warned that a failure to actively decrease tariffs could lead to a negative economic scenario. The VIX index widely known as Wall Street’s “fear gauge”-printed the second highest level since pandemic on Friday after China imposed retaliatory tariffs on the U.S. Earlier this week the UBS had lowered its S&P500 price target and downgraded the U.S. equities to neutral from attractive.
*JP Morgan Chase bank’s chief U.S> economist Michael Feroli, revised the bank’s economic outlook sharply downwards in light of recent tariff announcements by Trump. The bank now expects the U.S. real GDP to contract, forecasting a full year growth rate of -0.3%, a significant drop from the previously projected 1.3%. This anticipated downturn is expected to increase the unemployment rate to 5.3%. In addition to this JPMorgan has adjusted the core PCE inflation forecast upward by 1.4% points to 4.4%. Despite this inflation increase, the bank still anticipates the Fed to initiate an easing policy starting in June.
*U.S. has started collecting the unilateral 10% tariffs on all imports from many countries with higher levies on goods. The baseline tariff took effect at seaports, airports and customs warehouses. Among the countries first hit with the tariffs are Australia, Britian, Columbia, Argentina, Egypt and Saudi Arabia. A U.S. Customs and Border Protection bulletin to shippers indicates no grace period for cargoes on the water at midnight on Saturday.
* The U.S. economy added more jobs than anticipated in March, but the previous month’s figure was revised sharply lower and the unemployment rate rose, adding to the economic uncertainty as Federal reserve officials attempt the path ahead for interest rates. Nonfarm payrolls for the month came in at 228000 a jump from the revised lower 117000 in February. Economists had anticipated 137000 jobs in March, while the Feb fig has previously been 151000. Meanwhile the unemployment rate was 4.2% a rise from Feb’s 4.1% pace.
Indian Market
The stock market on Friday crashed due to an across the board selling amid growing recession and rising trade war fears. The Sensex descended 930.67 points or 1.22% to close at 75364.69 with 2923 declines and 1029 advances. The Nifty index fell 345.65 points or 1.49% to end at 22904.45. Nifty Metal was the biggest laggard with a fall of more than 6% and the others were pharma with nearly 4% fall followed by Oil & Gas, Realty with almost 3.5% and Nifty IT falling to 3.25%. After giving a bullish breakout Nifty50 managed to close inside the channel once again pushing it back in to the negative zone below 23000 and the index is also trading below the 200 dema indicating a bearish sentiment. Additionally, the Index also broke below the crucial support of 23100 where it sustained thrice but eventually on Friday it broke down. Looking at these developments markets may experience further declines. On Friday late evening we saw that the Gift Nifty was trading at the levels of 22400 but I would say, ignore it for now and let the markets open on Monday. As per the technical’s the key level to watch out is 22700 which was also mentioned in my last post. Now the interesting fact is that last week I boldly stated, the chart’s health looks good and Nifty50 is slowly adding one after other feathers to its cap. And finally Nifty acted as per the technical health of chart and it stayed strong for the whole week ultimately surrendering on Friday. So now should I change my view from bullish to bearish after the tariffs and big falls in U.S. indices. Well, technically looking at the charts my answer to that would still be a NO. Tariffs has disturbed and dented the world markets in a big way and it may harm us. We cannot deny on that but I would take a pause and would say that technically things would go on a toss after a drop below 22400 as it is the main crucial support point before our short-term bottom of (21964). Yes, you heard that right. Unless we are above this point of 22400, we still have a hope due to one more bullish development. I would like to throw some light on that which has a mighty bullish implication. I do agree that during this chaos of tariffs, markets may behave unexpectedly and we may face serious consequences. Coming back to the bullish development on the charts which is again posted below for your further reference and that pattern is called “Inverted Head & Shoulder” pattern.
Conclusion: Nifty50 dropped inside the wedge again making it difficult for the bulls to reclimb, thus creating bearish implications once again adding fear of tumbling back to 22000. On the contrary the technical charts amidst this descending trend have again come up with a pattern which holds bullish implications when formed, please find the chart below to understand the pattern formation where one can easily spot the ‘left shoulder’ and the ‘right shoulder’ and also the ‘neckline’ which is placed at 23800/23900. However, like any technical pattern, it is not fool-proof, and failures can occur depending on the circumstances. We have just witnessed the falling wedge break out going awry. Usually the Inverted Head & Shoulder pattern is formed after a down trend. The readers here may get confused, thinking how to deal with these 2 unusual changes. Well, as I said earlier, the situation has become tricky, as 2 unusual phenomena are at play: one strange condition journeys North, while its counterpart travels in the opposite direction, towards the South. So, what to do in this tricky situation? I think the best play would be to watch out levels for fresh trades. The markets have already corrected till 22000 and made a short-term bottom. So, instead of jumping into assumptions, lets first see the market reaction and then come to conclusion. Nifty50’s crucial support to watch is 22700/22400. If by any chance we open below 22400 or break and close below it then avoid all longs and wait patiently to understand whether we are surrendering our previous short-term bottom of 21964. As a break or close below 21964 will indicate that the entire bullish implications would get invalidated. However, if we are able to hold 22700/22400 positively then try to take a chance on contra bets and go long, as even after a fake upside breakout of the wedge, Nifty50 again managed to add one more feather on the cap and i.e. “Inverted Head & Shoulder” pattern.
Trading Range: As of now, Nifty50 may struggle to cross the psychological mark of 23000 and bears will try to hit hard till 22400/22200 although 21964 remains the most crucial point of support. On the upside, bears will try to defend the mark of 23140/23200 so all rise till 23150 will be used for adding shorts with help of crucial hurdles at 23420/23550. On the other hand, if we happen to hold 22700/22400 mark and manage to cross the upside level of 23200 then we may attempt to revisit the neckline area of 23800/23900.
NOTE: A break below 21964 will end all the bullish implications while any crossover above the mark of 23900 will open a huge upside for Nifty50.
Bengali
English
Gujarati
Hindi
Kannada
Malayalam
Marathi
Nepali
Punjabi
Sindhi
Tamil
Telugu
Urdu