STOCKS
Blood bath across the global equities as the fear of corona virus spreading outside China is jolting the market sentiment. All major indices have tumbled and are under pressure. However, on the charts the indices are coming closer to crucial supports which have the potential to halt the current fall caused by panic selling. For instance, 27850-27800 on Dow, 13000-12900 on DAX, 2950 on Shanghai are key levels from where a bounce-back move is possible. As such we will be watching closely for a reversal from these supports rather than becoming more panic.
Dow (27960.80, −1,031.61, -3.56%) has tumbled well below 28650 (from where we had expected a bounce) as against our expectation. 27850-27800 is a crucial support zone to watch now which needs to hold in order to avoid further fall. A strong bounce from this support zone may have the potential to take the index back to 28500 and 29000 again. We will have to wait and watch the price action over the next few days closely.
DAX (13035.24, −544.09, -4.01%) has declined sharply as expected and indeed much below our expected level of 13200. Crucial support is now in the 13000-12900 region which will need a close watch. While this support holds, a bounce-back move 13200-13400 can be seen in the near-term which in turn can avoid the danger of seeing a further fall to 12600.
Nikkei (22686.61, −700.13, -2.99%) has recovered well after tumbling to a low of 22335.21 today. It will have to be seen if it manages to close above 22800 today or now to see whether the fall below 22800 is just a false breakout of the 22800-24140 sideways range. Only a strong close below 22400 will be bearish going forward.
The resistance at 3050 has held well and Shanghai (2984.60, −46.63, -1.54%) has come-off below 3000 again. The index is in a corrective fall and can test 2950 in the near-term. We expect the downside to be limited to 2950 and a bounce-back move is possible eventually to keep the uptrend intact for testing 3100 on the upside.
Nifty (11829.40, -251.45, -2.08%) has tumbled towards 11800 as expected yesterday. A head and shoulder pattern on the 3-Day chart leaves the chances high of the index tumbling further to 11600-11550 in the coming days. A strong break below the immediate support levels of 11800 and 11750 can trigger this fall. Resistance will now be in the 11950-12000 region.
Sensex (40363.23, -806.89. -1.96%) has declined sharply below 41000 and can now test 40200-40000 as mentioned yesterday. The outlook is bearish. While below 41000, Sensex can break 40000 and extend the fall even up to 39500.
COMMODITIES
Gold and Silver have dipped a bit but doesn’t look like a sharp reversal yet while above immediate supports. A further rise after a brief dip looks more likely. Rising Gold amidst strong US Dollar is surprising but this reversal in directional correlation could be short lived. Copper could be ranged for the next few sessions. Crude prices trade slightly lower but can be bullish for the medium to long term.
Gold (1657.40) and Silver (18.57) have dipped slightly from higher levels seen yesterday. But the earlier resistance turned support on Gold near 1640 could hold well for the near term possibly keeping Gold above 1620/40 region in the next few sessions. Silver on the other hand could remain above 18 and eventually rise to test 19.
The bounce from 2.50 seen in the 1st week of Feb’20 has held well but whether it indicates a longer term uptrend is still to be confirmed Weekly charts show possibility of a test of 2.45 on the downside and cannot be negated while price is below 2.60. Currently Copper (2.5870) trades below 2.60 and could remain in the 2.60-2.55 region for the very near term.
Brent (56.72) and Nymex WTI (51.74) have also dipped slightly. While 60 holds on Brent, there is scope for a fall towards 56-54 before a bounce back is seen while WTI is likely to hold above crucial support at 50.
FOREX
US Dollar Index have dipped a bit taking up Euro and dragging down Dollar Yen lower. EURJPY is rising but the rise looks limited for the near term. Aussie could remain weak despite recent rise from support levels. Pound may trade below 1.31 and could be bearish. USDINR is likely to test crucial near term resistance from where a rejection looks possible. Overall concerns from China still linger to impact the markets.
US Dollar Index (99.23) has dipped from levels above 99.50. It is to be seen now whether this fall is able to sustain for a fall below 99 eventually indicating weakness creeping into the index for the medium term. Near term support is seen near 99.
Euro (1.0863) is bouncing back well. A dip towards 99 in dollar Index could keep the Euro higher. On the charts there is limited downside towards 1.0750-1.07 while longer term direction looks upward. View is bullish for Euro while above 1.0750/07.
Dollar-Yen (110.84) has come off sharply from 112. While that holds, we may expect a corrective dip towards 110-109.70 before another rise back towards 112.
EURJPY (120.41) is holding below resistance near 121.20/50 and could be ranged for a few sessions while we may expect EURJPY to again fall below 120 in the longer run.
Tensions revolving around the Chinese economy are still a concern for the Aussie (0.6619) which bounced back after a short test of levels below 0.66. A sharp bounce above 0.66 to higher levels is crucial to negate further fall towards 0.64 mentioned yesterday. But we would be cautious of a fall again below 0.66 in the near term.
Pound (1.2939) is stable but it could trade below 1.31 to head towards 1.28 in the near term. View is bearish while below 1.31/30.
USDCNY (7.0134) is holding below the near term high of 7.0425 seen on Friday. As mentioned in the previous editions, while below 7.04/05, Yuan could start strengthening again in the near term towards 6.99/98.
USDINR (71.9975) did indeed move up to test 72 as expected. Today’s movement is important as we may not expect a sharp rise from here above 72.20/25. A maximum test of 72.20/25 is possible from where a dip back towards 71.70/50 looks possible.
INTEREST RATES
The fear of corona virus spreading outside China continues to weigh high on the sentiment and keeps the market highly risk averse. As a result the global equities have run into a sharp sell-off. This in turn has dragged the US Treasury yields sharply lower in line with our expectation. The US yields have room to fall further but are coming closer to their crucial supports from where a reversal is possible. The German Yields have also declined sharply and can move down further in the coming days. The outlook continues to remain negative. The 10Yr GoI has failed to sustain above 6.40% and can fall to 6.30%-6.28% on a break below 6.35%.
The US 2Yr (1.28%), 5Yr (1.23%), 10Yr (1.40%) and 30Yr (1.86%) Treasury yields have tumbled further and are heading towards their crucial supports as expected. The 10Yr has declined below 1.45% and can now test 1.30% and 1.28%/1.25% on the downside as mentioned yesterday. The 30Yr on the other hand can head towards 1.80% and 1.75%. Thereafter the yields are likely to reverse higher again.
The German 2Yr (-0.69%), 5Yr (-0.66%), 10Yr (-0.48%) and 30Yr (0.0%) yields have moved down further in line with our expectation. As mentioned yesterday, the 10Yr is heading towards -0.50% and the 30Yr has come-down to 0%. The 30Yr can extend the fall to -0.20% on a strong break below 0%. The 10Yr on the other hand can test -0.60% on a break below -0.50%.
The 10Yr GoI (6.3636%) has failed to sustain the break above 6.40% seen last week and has come-off below it sharply yesterday. 6.35% will be an important level to watch now. A break below it can drag the 10Yr GoI to 6.30%-6.28% from where a bounce is possible. The yield has to sustain above 6.35% and also rise past 6.40% decisively in order to delay the above mentioned fall to 6.30%-6.28%.
