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The Black Friday Sale: Is it the Bottom Though?

November 29 2021 | Reading Time: 5 Minutes
Nifty fell 8.4% from its all-time high of 18,604. This week alone, Nifty corrected 4.2%. Today turned out to be Black Friday event for the market as it corrected ~3% today. The correction in equities can be attributed to some serious global macroeconomic factors such as new variants of the pandemic arising in South Africa, rising cases and deaths of COVID-19 patients in the U.S., and a new wave of lockdowns in parts of Europe, along with global inflationary pressures and an upcoming gloomy tapering move by the U.S. Federal Reserve (Fed).
 

 
Source: Whatsapp Images
New COVID-19 Variant Strikes
Scientists say the variant detected in South Africa may be able to evade immune responses. Little is known about this new variant, but experts believe it is an unusual cluster of mutations.

 
Source: Google Images
Multiple cases of the new variant B.1.1529 have been reported in Botswana, South Africa, and even in Hong Kong.
Rising COVID-19-related Deaths in the U.S., Lockdowns in Europe
The U.S. is facing the sixth wave of the pandemic and cases are rising at a deadly pace. This time, however, deaths too have been rising at an alarming pace. The U.S. registered a seven-day average of 84,928 cases and a seven-day average of 1,020 deaths.
 

 
With the surge in cases and fatalities in the U.S., hospitals are short of ICU beds.
Cases in Europe have been rising as well and November 2021 looks similar to November 2020 for the continent in terms of pandemic cases. Countries with the most increase in caseloads are the Netherlands, Austria, Germany, Norway, Poland, and Slovakia.
With rising cases come lockdowns. Parts of Europe are already shut off.
Is the Rising Inflation Rate Really Transitory?
Commodity prices have risen worldwide, primarily due to supply chain blockages and labor shortages. Most central banks say the high inflation rate is temporary, but several global market participants believe that price increases are unlikely to subside anytime soon, which may lead to higher interest rates, going forward.
The Bloomberg commodity index has remained flat in the past few weeks.
 

 
Source: Hindustan Times
U.S. Fed Continues Hawkish Stance
Various U.S. Fed policymakers said they would be open to speeding up the tapering of the bond-buying program, if high inflation continues. They would move quickly to raise interest rates as suggested by the minutes of the latest central bank policy meeting.
 

 
Source: Google Images
The Fed plans to end the stimulus altogether in 2022. However, rising cases and deaths on U.S. turf can slow the pace of tapering if the situation persists.
India Currently Away from Virus Scare
India has maintained its fast pace of vaccination against the Coronavirus after the scare of a second wave of the pandemic. India currently has administered 120 crore doses of vaccinations and 30.6% of the population is fully vaccinated at this time.
 

Source: Google Images
Meanwhile, India’s pandemic cases remain under control, with the seven-day average of cases at 9,401 and fatalities also under control. A rise in cases in some parts of the globe such as the U.S. and Europe, and new issues such as the South African variant, remain a threat to India’s growth.
If cases remain under control and there are no further lockdowns in the country, India’s growth story would remain intact.
How Did We Identify the Market Top in Fall 2020?
 
In February last year, Nifty breached its 200-DMA, which has been a long-term support for the index. After an elevated distribution count, we started to downgrade the market status from a Confirmed Uptrend to an Uptrend Under Pressure on February 1, 2020 and to a correction on February 27, 2020.
 

Thus, we have exited our model portfolio and stayed in cash during the fall.
Current Market Status
 
Nifty breached its 50-DMA on November 18. Today, it breached its 100-DMA, which has historically been a good support level. Hence, we have downgraded the market status to a Downtrend. Broader market indices, the Nifty Midcap 100 and Smallcap 100, have also breached their 50-DMA.
Stocks continued to take on technical damage with many moving deeper into their respective bases and breaking below logical support levels. Markets are currently not conducive for holding stocks below their 50- and 200-DMA. It is better to protect capital by staying on the sidelines than to take on risk. Although it is tempting to buy stocks on pullbacks during a market correction, one should wait for market conditions to improve and avoid catching a falling knife. 
Looking forward, we will shift the market to a {Rally Attempt} if Nifty establishes a bottom and stays above today’s low (16,985) for three straight sessions. From there, we would prefer to see a {follow-through day} before shifting the market back to a {Confirmed Uptrend}. Should this occur, the focus will be on ideas breaking out of the early-stage base pattern and showing the best relative strength with good accumulation.
The following cycle helps determine market status:
 

 
When the market is in a Downtrend, we decrease our exposure to it and stay in cash.
Current Sectoral Market Condition:
 

 
It can be observed from the above table that, barring Nifty Pharma, all sectors are either Under Pressure or in a Correction. This indicates that the overall market looks weak. Barring Nifty Auto, all indices are trading below their 50-DMA.

What do you think? Please email us any questions or comments.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.For more information, see our Legal disclosures here.

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