The equity markets have been under severe turmoil following the outbreak of COVID-19. The pandemic has seen global markets across the board seeing a sharp and highly intensified decline from their 2020 peaks.
- By Milan Viashnav
The equity markets have been under severe turmoil following the outbreak of COVID-19. The pandemic has seen global markets across the board seeing a sharp and highly intensified decline from their 2020 peaks, and India has been no exception. From the peak, the headline index NIFTY came off nearly 35%; if we look from the financial year perspective, this financial year has seen the NIFTY returning a negative return of 21%.
The obvious question following the present technical setup is about the outlook for the coming twelve months. However, to answer this, we will need to put and understand the technical setup in a broader perspective.
If we have a look at the long-term technical weekly charts of NIFTY, it clearly shows that the index had been in a secular uptrend that it began after the mayhem in 2008. This secular uptrend remained intact for over 11 years. It is important to notice that this decade-long uptrend was abruptly brought to an end as a result of the present outbreak of the pandemic.
While looking at the broader technical setup, it also appears that after marking the highs near 11000-mark in early 2018, all the incremental highs that the markets made came with a negative divergence of the RSI. This was a signal enough to show that all incremental highs over the last year and a half came without the participation of the broader markets and totally lacked the internal strength.
Despite the pullback of over 12% through the previous week, the outlook for the markets remain grim and cautious. The violation of the 11-year long upward rising trend line is a very serious technical event which cannot be ignored. Any major support, if violated and broken, becomes equally important and a strong resistance point.
This means that if the NIFTY continues to see any more technical pullback, the 11-yr old upward rising trend line will pose a very stiff and strong resistance. Given the upward rising nature of the trend line, even if the NIFTY sees any continued up-move, they will remain limited in its extent.
If we translate the reading into levels, any up move should get exhausted near the 10,000-levels with a variation of two percentage points on either side. The outlook for the coming year remains that of a limited upside. The price action of the NIFTY against the present low levels of 7850-7500 zone will decide its behavior on the lower side; upsides, however, would remain limited in its extent and scope.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. The views are the author’s own)