NIFTY TUMBLES AFTER BREAKING 7890 SUPPORT

NIFTY TUMBLES AFTER BREAKING 7890 SUPPORT

WORLD MARKETS                             

US indices fell 1.5%-2% on the first trading day of the year, weighed by sell-off in Chinese markets, renewed concerns of global economic slowdown and increased tensions in the Middle East.

The Shanghai and Shenzhen exchanges ended the trading session early after the CSI 300 dropped 7%, triggering a circuit breaker. The halt was the first implementation of the new circuit breaker rule announced in September. The sell-off was on the back of weak Caixin manufacturing PMI data and reduction of positions in Chinese small caps ahead of the Friday expiration of a six-month selling ban imposed on the major shareholders of listed companies. The Chinese yuan also weakened to hit its lowest since 2011.

In another development, Saudi Arabia, the world's biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. The protest followed Saudi Arabia's execution of a prominent Shiite cleric

Back in the US, December ISM Manufacturing Index came in at 48.2, down from November's 48.6 print to its lowest since June 2009. Construction spending fell for the first time in nearly one-and-a-half years, down 0.4% in November.

Nymex oil fell 28 cents, or 0.8% to $36.76 a barrel, giving up an earlier spike to above $38.30 a barrel. Brent fell 5 cents to $37.24 a barrel. Gold rose $15 to $1075 an ounce.

European markets tumbled 2.4%-4.3% with DAX leading the tally on the way down. Markit's final manufacturing PMI for the euro zone rose to 53.2 in December, hitting a 20-month high.

AT HOME

Dragged down by the negative global cues, viz. a sharp sell-off in Chinese stocks and heightened geopolitical tensions between Iran and Saudi Arabia, benchmark indices nosedived more than 2% yesterday, registering the steepest fall since 1st September. Sensex sank 538 points to settle at 25623 while Nifty finished at 7791, down 172 points. BSE mid-cap and small-cap indices lost 1.2% and 1.1% respectively.  All the BSE sectoral indices ended in red with Telecom index and Bankex leading the tally, down 3.2% and 2.6% respectively.

FIIs net sold stocks, index futures and stock futures worth Rs 667 cr, 40 cr and 259 cr respectively. DIIs were net sellers to the tune of Rs 223 cr.

Rupee plunged 47 paise, suffering the steepest fall in 9 weeks, to close at 66.61/$.

India's Nikkei's Manufacturing Purchasing Managers' Index fell to a 28-month low of 49.1 in December from November's 50.3. It was also the first reading below the 50 threshold that separates growth from contraction since October 2013.

OUTLOOK

Today morning, Shanghai Composite, after opening around 3% lower, has recovered and is now trading in green. Other Asian markets are trading with modest gains and SGX Nifty is suggesting about 20 points higher opening for our market.

In yesterday's report we had clearly mentioned that 7890 continues to be immediate support, a breach of which would generate a sell on the hourly chart and would pave the way for the further correction. We had also advised going short below 7890.

The benchmark broke 7890 support and plunged all the way to 7781 before closing at 7791, vindicating above mentioned view.

In yesterday's fall, Nifty broke the 34-DMA support placed around 7820 as well as the 38.2% retracement level of the recent 7550-7973 upmove placed at 7812. 50% and 61.8% retracement levels of the 7550-7979 upmove, placed around 7760 and 7710 respectively, are the next downside targets to eye.

7900 is the immediate resistance on the hourly chart is the immediate hurdle above which 7980 would be a tougher hurdle to eye.