Modi move: 21-day lockdown better than months of chaos
Volatility will remain a concern for traders as India VIX is still trading above 70 mark.
March 28, 2020 / 11:25 AM IST
Sigh of relief can be expected for bulls as positive candlestick patterns are emerging on the chart. ‘Bullish doji’ candlestick pattern followed by big green candle suggesting that bears could take a pause and pull back rally might extend in coming days. Market is trading in a highly oversold zone where weekly RSI level has breached the low 2008 bear market and it could result in a short term bounce back. Scenario was clearly indicating that exaggeration of negative sentiments has hammered the bulls quite intensely and pull back rally will not be ruled out from lower levels. Expected rally has already taken a shape and follow up buying can still be expected from current levels.
Already, more than 196 countries are under the grip of the coronavirus (COVID-19) pandemic. Even developed countries such as Italy, UK, the US etc., having sufficient resources and premium medical facilities failed to put a pause to its intensity. Particularly India, being a developing country is not groomed with appropriate infrastructure, apt digital and medical facilities to arrange for approximately 140 crore of population. Data suggests that most of the cases of this virus emerged from travelling abroad. So, in between all this Prime Minister Narendra Modi's call for a 21-day lockdown to prevent virus spread is indeed a better step than months of chaos.
Thus, before community spread happens, if is controlled/prevented and the theory works then India could escape the forthcoming global pandemic and economy would not be hit much. While the current lockdown will bother citizens, alternatively, the case would have been worse if such situation was cured after couple of months. Already, our economy is moderate and then would have been hit multiple times and cracked. We believe this prevention cost of 21 days is manageable by India. If the situation settles down, we suggest partial buying to the levels of 7,500-7,700 in sectors such as infrastructure, pharmaceuticals and FMCG. Return up to 30-40 percent can be achieved in April month itself.
Taking the Fibonacci ratio into consideration it seems that bulls might take the rally towards 9,329 which is 38.2 percent retracement level of the entire fall. The level of 23.6 percent retracement level was 8,630 which is already traded on higher side and now 38.2 percent is likely in coming days. Apart from this, intraday charts are also reflecting some interesting facts. Prices have started tagging the upper band of Bollinger bands on hourly chart for the first time after February 12, 2020.
Volatility will remain a concern for traders as India VIX is still trading above 70 mark. Apart from this the concept of ‘average true range’ cannot be ignored at this moment. As per historical data, the weekly average range of Nifty is 477 points which has propelled to 1,769 points in the current week. This reflects the extraordinary trading scenario and volatility will remain the concern until the range settles down at normal levels.
The author is Senior Research Analyst at Rudra Shares & Stock Brokers.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.