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Indian equity markets closed in red for the second straight day after following weak global leads. Investors around the world were worried after the US Federal Reserve raised interest rates further to fight decades of high inflation. Asian markets mostly ended in red after the Federal Reserve issued a more hawkish-than-expected outlook, with Chinese stocks pausing a two-day rally as uncertainty about the country's plans to ease COVID lockdowns receded. European markets are trading lower after the US Federal Reserve fully reiterated its commitment to fight inflation and signaled it was very premature to consider pausing the tightening cycle. Today's MPC was about giving comfort and visibility to the central government on the RBI's efforts to contain inflation and bring it back closer to the 4% target; The upper tolerance threshold of 6% has been continuously exceeded in the last 3 consecutive quarters. Fueled by the war in Ukraine, with rising inflation due to disruptions in supplies of various commodities, including food and fuel, the RBI has already raised the repo rate four times this fiscal year to 5.9% to bring inflation down from the current 7% plus levels. While some believe monetary tightening could have started a bit earlier, the RBI took a fairly balanced approach to ensure growth did not slow as India was still emerging from COVID-induced lockdowns and business disruptions. Indian benchmark indices ended the year marginally lower volatile session on 3rd November. At the close, the Sensex was down 69 points, to 60836 and the Nifty was down 30 points to 18052. Among sectors, the IT index fell the most, over 1.14 percent, while PSU banks rebounded sharply, gaining 2.64 percent. Technically, our market opened on a negative note on the back of weak global clues, but bounced back sharply after an open to the downside. However, after an early morning intraday rally, the market saw range bound activity throughout the day. The rally that started at 16,950 in mid-October 2022 has gone completely nuts with the buying pressure exerted by the bulls. That long stretch of around 1,200 points is no small move for a benchmark index, especially amid heightened volatility. The Nifty 50 hit 18178 yesterday, its highest level since January 18, 2022, showing a very strong trend, while the day before yesterday, the SGX Nifty even surpassed 18300. However, the bulls' party could be coming to an end, at least in the short term. My observation is that major events tend to become turning points in the market. The Fed rate hike event is over with another 75 basis point hike. Investors who had positions prior to the event may now be looking for the next event, which is the CPI number. If the market broke yesterday's high, it would have signaled continuation of the trend. But that didn't happen today, in fact the Nifty traded in the red for most of the day, so I'm not too optimistic from here, at least until next week. Turning to the chart, as the Nifty struggled to break above 17900 a few days ago, I suggested three signals to look out for if traders are attempting to go short. Two of these signals were triggered today. First, the index broke its previous day's low for the first time since October 25, 2022. In fact, the index broke this low just yesterday; the current monthly futures did today. The second signal came after the index fell below rising trendline support for the first time since the rally began (see chart above). This trendline break clearly indicates bearish momentum. Interestingly, if you look at the November futures chart, the market appears to be forming a double top formation with the September 13, 2022 high of 18230 and the November 2, 2022 high of 18230. Selling at exactly the same level is definitely not a good sign. With all these signals, a short-term correction is possible from here. As long as the current high is intact we could see a drop to 18000. However, the next US CPI number, due to be released on November 10, 2022, would likely dictate the further trend.
Resistance: 17350, 17450, 17550
Support: 17250,
17150, 17050
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