Ready your list of value bets, it’ll be a buyers’ market soon
Trade war between US and China is causing an escalation of fear among investors.
But, hopefully, with the onset of the new financial year, things will improve.
Media headlines are all turning bearish “Uncertainty here to stay traders, sell on every rise”, “Markets may be heading for a bear phase”. This kind of headlines indicates extreme bearishness and, therefore, markets can swiftly bounce back at least in the short term. During bearish spells, IPOs also go unsubscribed – Hindustan Aeronautical got lukewarm response. All of this indicates that a deep correction has already happened in our markets and any further downfall may only be limited, unless something goes wrong drastically on the tariff war front.
Trade war between the world’s largest economies is causing an escalation of fear among investors in an already weak market.
Key Events of the Week
The US Fed raised interest rates by 25 bps and maintained a dovish stance on further tightening lending rate during the year. One good thing about the new Fed Chairman is that he has set his agenda on interest rate hikes till 2019, which will give lot of clarity to markets going ahead. However, the US – China trade war with US imposing a tariff on $60 billion worth of Chinese goods could be a game changer for world trade.
The dawn of an era of anti-globalisation could also be the beginning of a new threat to the global bull market.
The Nifty50 has decisively penetrated the 200 EMA with low velocity, as can be seen from the MACD indicator. In the worst case scenario, the 50-pack can touch the 9,700 mark at the lower end of channel of the downward sloping trend line (red).
Incidentally, the Nifty50 has a strong previous support at 9,700, which shall be a powerful reversal point for the index going ahead.
The market is entering a complex corrective pattern, which should correct the entire rally since last year. However, intermittent rallies are also expected in the meantime. Sell on rise should be the strategy for traders.
Expectations for the Week
The current high degree of pessimism in the markets warrants a reversal, albeit of a shorter term in nature.
However, with fears of trade war aggravating and political climate heating up domestically, there is bound to be acute pressure on the bulls from a medium-term perspective. Yearend liquidity crunch will keep investors at bay, but liquidity should improve from the start of the new financial year and the same would be reflected in the market.
Mutual funds inflow on account of ELSS should boost their buying power, thus lending support to the market. Investors should keep a list of value-driven companies ready as ample opportunity will emerge as the year passes by.
The Nifty50 closed the week at 9,998, down 1.93 per cent.