Declining Oil Prices and GDP data could decide market direction: Epic Research

Oil prices have entered a bear market. OPEC members are meeting in early December to decide about oil production cuts and this would be important for the direction of crude oil. With lower oil and strengthening currency, Indian markets can expect strong support if there is a decline in major indices during next week. Indian market will also be looking for GDP data.

Nifty ends down making a bearish engulfing pattern on the weekly chart on Thursday indicating a bearish bias in short term. Nifty shredded its previous two weeks of gains and ended below 10550. Despite a fall in crude oil, appreciation in rupee, the jitters were seen in investors as Nifty struggled around 10700 marks.

Technically, A bearish engulfing pattern is a reversal pattern which favors the bear with higher probability. A body, black, engulfs the previous candle indicating the strength of bears and hence implicates the future to be with a negative bias. Secondly, prices have seen a resistance placed at 10720 levels which also happens to be a 50 Days MA zone. We have seen a rejection of bulls in the current trend at higher levels.

The global cues were the major reason for present fall as global markets were moreover bearish with major indices such as SP500, NASDAQ, FTSE, and CAC posting a negative returns for the second consecutive week. Most global markets rejected the rebound from lower levels and selling pressure was clearly seen on any pullback.

The major event for the Indian equity market would be the GDP data that is eyed at the end of this month along with expiry. The numbers would certainly give a medium-term directional view for Broader indices and decide the breadth for coming months. That said, we have elections in major states and a lot would depend on the outcome of it.

It is evident one can be vocal about volatility that is expected to come in and rise. Hence we may witness a directional play keeping above analysis in perspective.

One needs to be cautious going ahead as headwinds may be stronger and volatility may be high. We expect the range for the market to be 10600 to 10220 and approach should be selling on any pullbacks.

On Rupee:

Rupee has appreciated in last couple of days and there are multiple factors that are aiding this appreciation. We have been bearish on USDINR (Bullish on Rupee) from 74.5 levels. Firstly the rise in Crude oil prices in the last few months was one of the most important factors along with others, India is one of the largest consumers. This was directly having an impact on CAD which was expected to be widened. Since last 2 weeks, Crude has fallen 30%. Rising bond markets yield was another factor while Indian 10 Y T-Bond is now down to levels of 7.74. All of this adds to a better equation for India as an economy and rupee as a currency. For very short term we believe prices can remain negative with some minor pullbacks and in the medium term we expect 69 to be the target.

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