NIFTY PLUNGES TO 7557, VINDICATES OUR VIEW

NIFTY PLUNGES TO 7557, VINDICATES OUR VIEW

WORLD MARKETS                             

US indices nosedived 2.3%-3% yesterday on the back of sell-off in Chinese markets and lower oil prices. Devaluation of the Chinese yuan and speculation of significantly more weakening in the currency also weighed on sentiment.

Trading in China was suspended after the CSI 300 index - the benchmark index against which China's new circuit breakers are set - tumbled more than 7% in early trade, triggering the market's circuit breaker for a second time this week. Shanghai Composite had tumbled 7.32% by at the time of the halt, while the Shenzhen Composite plummeted 8.34%.

Also weighing on the sentiment was the move by People's Bank of China to set the yuan reference rate at 6.564, its lowest since 2011 and the largest daily change since Aug. 13. Media reports suggested that China's central bank is under increasing pressure from policy advisors to let the yuan currency fall quickly and sharply, by as much as 10-15%, as its recent gradual softening is thought to be doing more harm than good.

Later in the day, China Securities Regulatory Commission announced suspension of its recently implemented circuit breaker system.

Nymex oil fell to a new 12-year low before paring losses slightly and closing at $33.27 a barrel, down 70 cents or 2.1%. Brent fell 45 cents to $33.78 a barrel. Copper fell more than 3.5% in intraday trade to hit its lowest since Nov. 2015.Gold climbed to a nine-week high at $1108 an ounce.

European markets tumbled 1.1%-2.3%. Euro zone unemployment rate fell to 10.5% in November, its lowest level in more than four years. In addition, economic sentiment in the euro zone rose to 106.8 points in December from 106.1 in November, according to a European Commission poll.

AT HOME

China inspired carnage continued in world equities and our own indices nosedived more than two percent yesterday, extending the losing streak to fourth straight day and closing at a four-month low. Sensex slipped 555 points to settle at 24852 and Nifty finished at 7568, down 173 points. BSE mid-cap and small-cap indices tumbled 2.6% and 2.9% respectively. All the BSE sectoral indices ended in red with Realty and Metal indices leading the tally, falling 4.5% and 3.7% respectively.

FIIs net sold stocks, index futures and stock futures worth Rs 1052 cr, 1566 cr and 82 cr respectively. DIIs were net buyers to the tune of Rs 191 cr.

Rupee depreciated 11 paise to end at 66.93/$.

OUTLOOK

Today, Shanghai, after opening higher, dipped into the red and is trding around zero line. Other Asian markets are trading mixed with modest changes and SGX Nifty is suggesting about 20 points lower opening for our market.

In yesterday's report we had clearly mentioned that a breach of 7710, the 61.8% retracement level of the 7550-7973 upmove, would open up the possibility of the retest of the 7550 bottom.

The benchmark opened below the 7710 support and plunged all the way to 7557 before closing at 7568, nearly achieving target mentioned above and vindicating our view.

7550 and 7540 are the bottoms made in September and December respectively and continue to be important support levels to eye. Upon sustained trading below 7540, next major supports to eye would be the lower band of monthly bollinger placed around 7450 and the 34-month moving average placed around 7350.

7720-7675, the gap created by the gap down opening yesterday, would act as the immediate hurdle on the way up, with the stop loss of which short positions should be held on to.