Premarket analysis: 23 July 2020
Global markets are consolidating near recent highs
Easy money from developed markets are flowing to Emerging markets
Pandemic is not over yet
Better than expected quarterly results seems to be already priced in
Global Markets: -Mixed
European markets ended slightly in red while US markets added little more to their gains. Most of the indices in both European and US are re-testing their recent swing tops. The easy money provided by developed markets' central banks are keeping the risk-on sentiment alive.
Risk assets: EM equity ETFs consolidated sideways yesterday. High yield bonds index continued to move up. Emerging Asia government bond index traded in Europe was sharply down suggesting that the foreign investors are booking profit in bond market as it has run up quite a bit.
Safe heaven assets: US Dollar index continues with its downward trend. Japanese yen was sideways. Gold shot up again on dollar weakness. Industrial metal copper was following Chinese indices and consolidated. Volatility indices are pointing downwards.
ASIA this morning: - Mostly in Red
The first flash purchasing manager’s index for the month of July'20 is out for Japan today. Although it was better than last month slightly, pace of recovery has slowed down and it is not enough to take economic growth to pre-COVID levels. Probably this is the indicator for the other Asian economies as well.
Most of the Asia equity indices are slightly in red, have paused on their upward push. European and US futures are trading flat in Asian session. SGX Nifty is trading flat compared to yesterday’s Nifty futures close.
There are no major economic data release scheduled for today.
Today, HDFC AMC, BIOCON, ABB are the heavy weights that will be declaring their quarterly results.
India: -DIIs & FIIs are trading in opposite direction with sizable volumes
FIIs continued to be net buyers in cash market and hold sizable long position in index derivatives' open interest. Domestic institutions are holding sizable short position in all segments of derivative market. Be it Index Futures, options or stock options. Large proprietary traders are also holding short positions. The intraday whipsaw and volatile movements are due to DIIs and FIIs trading in opposite direction with sizable volumes.
How will Nifty perform today?: DIIs profit booking has exhausted the upward momentum. Their sizable short position in derivative markets indicates profit booking is not going to stop immediately. The good news from excess stimulus in developed markets and better quarterly results in India may have been already priced in. Therefore, FIIs may moderate buying at this level and wait for a pull back. In conclusion, market seems to have paused for breath and entered consolidation phase that will cause some pull back.
NIFTY -Technical Bias: Sideways with negative bias
Nifty price action:
Nifty achieved its immediate Fibonacci replacement-based target of 11200 yesterday and closed in red. Nifty is likely to consolidate for few days. The high of yesterday, 11240 could attract more profit booking. Markets need to display that they can withstand current selling pressure and hold above 10750 to continue its upward move after consolidation.
The support and resistance levels remain same as yesterday’s
Support: 10850. Strong support is at 10750
Spreads that will benefit from the above range are appropriate