Coronavirus hits Indian market! Nifty bounces back but so did China: what is the way ahead?

Ashish Kyal, CMT

Coronavirus actually created a low in the Chinese stock market! Yes, you could read it again. Everyone had been too focused to look at the market movement due to the epidemic outbreak and the death toll resulting in the global economic disruptions. But the stock market is the barometer of the social mood.

Here are some interesting facts: major global epidemic outbreaks have been during the extended period of bear markets, as pointed out by Robert Prechter, Executive Director, Socionomic Institute.

A depressed stock market represents a negative social mood. It is during this period that society is more susceptible to the epidemic outbreaks.

Look at the below chart of Shanghai composite weekly:

The chart shows that the Shanghai composite index had been in a downtrend for many months and years.

- The first coronavirus death was reported on January 11, 2020.

- On January 22, the death toll in China rose to 17, with more than 550 infections. Chinese stock market was shut from January 24 on the back of the extended Lunar New Year holidays and later due to the epidemic outbreak. The Chinese market reopened on February 3 with an 8 percent cut from the closing and formed a low near 2,685 levels.

- Post that the index continued to rally all the way towards a high of 3058 on February 21, thereby gaining 13.89 percent in just 13 trading days. (Both percentage gain and trading days took to reach there is a prime number).

- The Chinese market showed one of the strongest momentum rise it has seen over months when it reopened after the outbreak.

Do you still think the epidemic is responsible for the negative social mood or is it the other way around? If coronavirus is the reason for the stock-market collapse, then why is the Chinese stock index still trading higher after the outbreak was reported?

In fact, the index has reversed from the classic trendline resistance and has continued to move as per the Elliott wave pattern.

Now, let us see where is the Indian stock index Nifty placed with new cases of coronavirus being detected on March 2, 2020.

Nifty weekly chart:

The Nifty witnessed a sharp fall, which was also seen in September–October 2018, June-August 2019 and January till March 2020.

The magnitude of fall in all these instances has been similar. The 2018 fall was much bigger compared to the current movement on the downside.

- India confirmed new cases on March 2, 2020. The Nifty formed a low at 11,037 on the same day, which was exactly at the lower trendline connecting earlier lows.

- The Nifty is already up by more than 2.5 percent from the lows in single day protecting the channel support so far.

- The time cycles bottomed out a day earlier and the low formed on the Nifty is very much in sync with this cycle we have been following for almost a decade and which has worked on most occasions.

The facts given above should be understood in the light that it is the social mood that is responsible for the movement of the stock market and an extended negative social mood makes them more susceptible to diseases and epidemic.

Your entire perception towards the cause and effect will change if you stay focused on facts and the patterned behaviour of the market, which is very well defined by Elliott wave analysis that carries the forecasting ability and the news will eventually follow.

After markets recover, you will end up reading the following headlines:

“Coronavirus fear recedes as the number of cases being reported is reducing and as government shifts focus to containment and taking corrective measures”

I do acknowledge the loss to life due to this deadly outbreak and we should do whatever it takes to support this global cause, ensuring that the livelihoods of affected get back on track.

These are instances when it makes the world “One Nation” and demonstrates the ability of humans to fight against all odds.

(The author is CEO Waves Strategy Advisors. He could be reached at ashishkyal@wavesstrategy.com)

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