Sensex ends below 39K; here are 5 factors behind the meltdown

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Sensex plunged 491 points ending 1.25 percent lower on June 17 on mixed global and domestic cues. Nifty broke below the crucial support of 20-day EMA, as well as 11,800 level.

Among sectors, the S&P BSE Metal index ended more than 3 percent lower, followed by the S&P BSE Energy index, BSE Oil & Gas index, BSE Bankex, and BSE Realty index.

Trade war concerns, rise in crude oil prices, selling in metal and banking stocks, the slowdown in FII money, etc. are some of the factors weighing on markets.

Here are the top 5 factors that could be weighing on markets: Trade war fears: India imposes retaliatory tariffs

Trade war fears escalated sharply after India slapped higher tariffs on certain US products in retaliation to Washington’s decision to remove certain trade privileges for New Delhi.

The move will hurt American exporters of the listed 28 items as the importers will have to pay duties on these products, hence they might reduce the import. India would get about $217 million additional revenue from such imports, said a Reuters report.

Higher Indian tariffs on US goods could impact growing political and security ties between the two nations, it said.

Upcoming FOMC meeting:

Investors across the globe are trading with caution ahead of the crucial FOMC meeting this week. The two-day policy meet will start from June 18-19.

US markets extended gains as market participants are pricing in that US Fed may become dovish in June policy meeting. However, any outcome which suggests that US Central Bank has turned hawkish would dent sentiment.

Slowdown in FII investment:

After pouring in more than Rs 3,000 crore on June 3 when Nifty hit a record high, the momentum has slowed. FIIs have turned net sellers again in June in the cash market.

FIIs have been mostly net buyers in Indian markets so far in 2019 for more than Rs 50,000 crore. A slowdown in liquidity from FIIs will keep our markets gyrating in a narrow range at least in the short term.

Technical View:

Nifty breached crucial 20-day Exponential Moving Average (EMA) placed around 11,828 and it looks set to test its crucial 50-day EMA placed around 11,658 on the daily chart.

India VIX fell down 6.46 percent from 14.86 to 13.90 in the last week. Lower volatility suggests that a rangebound movement could continue for some more time.

Overall, the index has been consolidating in in the range of 11761-12041-12100 from the last fourteen trading sessions and requires a decisive range breakout to commence the next leg of the rally.

“Nifty formed a bearish candle on the daily and weekly scale that suggests selling pressure has been seen at higher band of the trading range,” Chandan Taparia, derivative & technical analyst at Motilal Oswal Securities told Moneycontrol.

“Now, till it holds below 11,888, it could extend its weakness towards the lower band of the support at 11,761 then a fresh decline towards 11,660; while on the upside immediate hurdles are seen at 11,965, then 12,000,” he said.

Nifty Bank heads towards 50-day EMA:

Nifty Bank witnessed a sharp sell-off, closing over 1 percent lower ending below 30,500. The fall in the index was led by Axis Bank, Bank of Baroda, RBL Bank, Kotak Bank and SBI.

On June 14, Bank Nifty failed to surpass previous day’s high and fell around 400 points to close near its lower band of the trading range at 30,600.

It formed a bearish candle on daily and weekly charts with the formation of lower highs, which indicates that bears are holding the grip at higher zones.

“As long as it holds below 31,000 zones, it could extend its weakness towards next major support at 30,250, while on the upside hurdle are seen at 31,000, then 31,313,” said Taparia.