Historically, correction on account of external factors are regarded as the best time to get into quality stocks
The S&P BSE Sensex plunged more than 600 points in intraday trade to slip below 41,000 levels while Nifty50 broke below 12,100 on the downside, thanks to the rise in geopolitical tensions in the Middle East which sent crude higher and India Gold to fresh record highs.
India Gold February futures broke above 41,000 to hit a fresh record high 41,096 on January 6. The Nifty50 broke below its crucial level 12,100 and its 20-Days Moving Average.
The carnage was worse in the broader market as BSE Midcap index plummeted 1.72 percent, while BSE Smallcap was down 1.54 percent at the time of publishing this copy.
Asian shares were toppled from an 18-month top on Monday as the United States detected a heightened state of alert by Iran’s missile forces, as President Donald Trump warned the US would strike back, “perhaps in a disproportionate manner”, if Iran attacked any American person or target, said a Reuters report.
Crude Oil prices added to their gains, to a 4-month peak, on rising fears of any conflict in the region could disrupt global supplies. Brent crude futures rose to $70.06 a barrel.
Looking at the global setup – rise in geopolitical concerns will give markets the excuse to sell at higher levels. On January 2, Nifty was just 4 points away from hitting a fresh record high.
So what should investors do? Historically, correction on account of external factors such as geopolitical concerns are usually regarded as the best time to get into quality stocks which might be available at a discount.
But, it (geopolitical concerns) is unlikely to derail the bull market, suggest experts. Long-term investors should use dips to get into stocks while traders might have to battle the volatility in the short term.
“Geopolitical concerns will certainly not derail the bull market rally but if there is any knee-jerk reaction then this will be a buying opportunity for investors,” Ajit Mishra, VP – Research, Religare Broking Ltd told Moneycontrol.
“Geopolitical concerns are short-term triggers which cause corrections in the market but the broader trend will remain intact. The Indian bull market will take its own sweet time correcting on the way up. In general, 2020 will be far better than 2019,” he said.
The market, which was in a bullish momentum, got hit by a geopolitical storm, but experts feel that the halt in momentum is temporary and could see a rebound if the situation stabalise. If not, the texture of the market in the near term may become weak.
“The market is in bullish momentum but geopolitical tension acting as a speed breaker for the market where if this geopolitical tension doesn't escalate further then we can expect the market to resume its uptrend in next week,” Amit Gupta, Co-Founder, TradingBells told Moneycontrol.
“But, if the situation becomes worse than near term texture of the market may become weak,” he said.
Where are markets headed?
Technically, Nifty is consolidating in the range of 12,000-12,300. The crucial support for the market is placed at 20-DMA placed at 12,139 which the index broke in trade on Monday.
The selling pressure is likely to get extended if the index broke below 12,000 levels, but 12050-12000 levels should lend support, suggest experts.
On the weekly chart, the index has formed a small bearish candle forming higher high-low compared to the previous week indicating positive bias.
The Nifty50 is trading above 20, 50 and 100-Day SMA's that are important short-term moving average, indicating positive bias in the short to medium term.
“The index is consolidating in the range of 12300 on the upside, and 12,130 on the downside indicating short-term sideways movement. Hence, any breakout on either side will indicate further direction,” Rajesh Palviya, Technical and Derivative Research Head, Axis Securities Limited told Moneycontrol.
“However, if the index breaks below 12150 levels then it would witness selling pressure that would take the index towards 12080-12000,” he said.
The weekly strength indicator RSI and momentum oscillator Stochastic have both turned positive and are above their respective reference lines indicating positive bias.
0 Comments