The Reserve Bank of India increased the by 50 basis points to 5.9% in today’s meeting which was highly expected. As I was expecting the 50 bps hike to be one of the key factors which could finally help to halt the freefall of the broader markets seems to be materializing and with much stronger signals.
First of all the Nifty index took support from around the 16,800 level which is a very strong demand zone and it has been hovering around this level for the last couple of sessions. As the demand was kicking in from these lower levels, the supply from above also capped the uptrend. But the RBI’s rate hike has finally changed the sentiments, at least for the short term which was clearly reflected in the sharp surge in indices across the board and the 16,800 level for the is still holding its ground.
Image Description: Daily chart of Nifty 50 (spot)
Image Source: Investing.com
The second strong signal is coming from the currency markets. Although the rupee opened the session on a strong note, all thanks to a fall in the , the strength increased after the rate hike. The 50 bps hike would help curb fund outflow from the Indian markets hence our currency is showing clear signs of a recovery. The falling rupee was one of the key factors for the Nifty 50’s fall and now when the rupee seems to be stabilizing, confidence in the Nifty 50 bottom is also increasing. This Intermarket relationship helps investors to take action in one market by looking at the other related market.
The third signal which is the icing on the cake is the piercing candlestick pattern on the daily chart of Nifty 50. This is a reversal pattern and is known to change a prior downtrend to an up trend. After a consistent fall, this signal is only making the reversal from here more reliable. Although, the session is still going on and one needs to wait for the closing to confirm this pattern. Furthermore, a follow-up move in the next session is the final confirmation of a reversal. If by the closing, the Nifty 50 closes above 16,993.6 (opening of the previous session), then it would be an even more bullish signal.
With all these reversal signals, the also cracked over 5% to 20.23, by 11:41 AM IST which depicts a lessening fear amongst market participants from here. Fear generally decreases when the market is headed upwards and increases when it’s plunging. Hence, reduced volatility is also hinting toward a temporary bottom.
It might not be a final bottom for the ongoing downtrend, however, today’s low is expected to hold its ground at least for the next couple of weeks, unless there comes a new development from the global markets which could anytime spoil the mood.