Nifty from the chart
we have seen an uptrend in market from March 2009 onwards, where market has
taken support after the 2008 crash. In year December 2008 nifty was trading
around 6300, which was all time high and suddenly market cracked due to global recession.
But market recovered from the lows immediately in 2009 and again tested the
higher level of 6345 same high from seen in 2008, but there was a rise in index
alone, stocks prices did not recover much. Price movement from 2525 point A to
6345 point B was 3820 points. Market respected the resistance level of 6345 and
retraced to point C at 4535 level, nearing the 50% retracement of 4430
deviating by 100 points. By the year end 2013 December resistance level of 4345
was breached and tested the all time high of 8665.
If we calculate
as per the theory of ABC price movement, point D of 8665 exactly comes at 161.8%
expansion of the rally from point A to Point B, calculating from point C. To be
precise 161.8% comes to 8700 level and nifty reverted just before breaching
this level. Now considering the fact
market has rallied one way from in past three months from 7750 to recent top of
8660 there has do be a correction in market. We expect nifty should correct
minimum by 50% of the rally from point C at 4535 to point D at 8665 which comes
to 6600 level. This correction till 6600 will bring to the strong support of
6350 which was once considered as strong resistance. If in worst case if nifty
breach and sustain its trading below 6350 on weekly basis we might look at a
falling knife in market with double edged, where the panic selling will come
and nifty will drift to 4500 which was point C support and next extreme case
support of 3400 level.
There are many reasons
for this huge correction in the financial market which is supported by
following fundamentals.
·
The VIX – the ‘Volatility Index’ – has dropped to 9.3 on
November 25th, the same reading last seen in 2007 where the world
financial markets were ridding for the fall.
o
This is what happened after the VIX hit
a low of 10.02 in February 2007. Stock markets were soaring at the time, but
then got clobbered by the credit crisis and all the disastrous events that
followed.
o
The VIX went on to hit an all-time
high of 79.13 in October 2008, when governments were scrambling to bail out
bust banks and fears were rife of a total meltdown in the world financial
system.
·
Prices of Crude oil are expected to test USD 55 per barrel to
USD 38 per barrel, which is supported by the excess supply from the OPEC
country that is not ready to reduce the output. US have started its own Shell
oil production reducing the dependability from the gulf countries. Globally the
demand for crude oil is reducing from many countries as they are entering in
the recession phase.
·
Countries like Japan and Europe have already entered in the
recession phase, but from today’s announcement Chinas government said lower
rated bonds can no longer be used as collateral, Shanghai Composite Index
headed for biggest loss since August 2009
·
Federal Reserve Bank have infused huge amount of funds in to the
economy in the form of quantitative easing program, but was not able to change
the intrest rate which is still at all time low. Although the Unemployment and
Labor market are showing sigh of improvement, inflation is still at the lower
level. Dollar index is trading positive in last 6 months, is well above 89 but
is failing to hold the higher level where 90 is expected resistance level. Till the time we do not see any improvement in
Inflation figure, sustainability of the growth will be doubt and if this
happens Dollar will also fall with global growth slowdown.
·
Dow Jones is
continuously trading higher from the bottom of 2009, with a small correction
was seen in mid 2011. There was not such a huge change in fundamentals, but the
funds which came in form of quantitative easing went to the stock market. And
once the bubble which is expected to bust might bring the greater panic then
what we have seen in 2008. If this happen then we might not look at sharp
reversal what we have seen in 2009, but we will be consolidating at the lower
level fighting for the growth.
Presently we are the
‘Peak’ of the economic cycle, which is followed by ‘Recession’ where many
countries have entered into the phase where they are facing recession phase.
Then there comes the ‘Trough’ where sustain near the trough will be tough time
for global recovery. Sooner the recovery from trough less is the chances of
entering in to the war type situation.
