The week that just went by will remain etched in all our memories. A week in which there were two black swan events, the Indian government’s strike against black money and Donald Trump getting elected as the President of the world’s largest economy.

The demonetisation move by the Centre caused a pandemonium in daily life, but market has not been too worried about the move. The Indian stock market has not been too worried about the move. Mutual funds, in fact, are expecting higher inflows in the coming months, as the surplus deposited in the bank accounts is expected to be channelled into investment vehicles. That should help liquidity in stocks.

It is the other event — election of Donald Trump to lead the US — that has the market in a tizzy. Stock markets across the globe sold off sharply on Wednesday morning as it became apparent that Hillary Clinton will not make it to the White House. The Sensex and the Nifty lost around 6 per cent, the S&P 500 futures hit the lower circuit at 5 per cent and the Nikkei lost 6 per cent. But in a volte-face that is typical of equities, stock prices staged a dramatic rally immediately after Hillary Clinton conceded defeat. Trump’s measured acceptance speech, coupled with his stated intentions to cut taxes and boost infrastructure, seems to have aided this rally.

But volatility was back in emerging market currencies, equities and bonds on Friday as a spike in US bond yields caused a sell-off in emerging market currencies and equities. The rupee crashed to 67.5, dragging stocks lower. Emerging markets currently appear shaky, fearing that US under Trump might clamp down on imports of goods and services.

The movement of the dollar index and the bond market will be critical in the coming weeks. Donald Trump will sign in as the President in January 2017 only. We will get to know his policies only then. But we have the Fed’s next monetary policy meeting in December, when a rate hike appears imminent. Dollar will continue to be strong in anticipation of this, applying pressure on EM currencies.

Wednesday’s lows made the Sensex and the Nifty test critical medium-term lows. The long-term trend remains up, as long as these hold. But a re-visit of these levels appears quite likely in the coming weeks.

While the external environment is tumultuous, the India story is improving. Investors therefore need to hang in there over the coming months and continue to think long term.

Nifty 50 (8,296.3) The movement of the Nifty over the last two weeks has made it launch into medium-term correction.

Medium-term trend: The Nifty might be correcting the entire move that began from the August 2013 low.

The first support band for the Nifty lies between the 8,000 and 8,150 band. The 200-DMA also lies here and the Nifty managed to reverse from here on Wednesday.

The most obvious count for the Nifty is that the third leg of the move from 5,118 is currently in progress. But the Nifty needs to hold above 7,600 to keep this count intact. If the Nifty manages to reverse from 7,897 or 7,657 in the current bout of correction, it will be a positive and will mean that the index can move towards its former peak again.

The key support band that needs watching lies between 7,500 and 7,650. Breach of this band will mean that the index is moving towards the next support zone between 6,600 and 6,900, where the index found support this March.

The 6,670 level is also the long-term trend deciding level for the Nifty. It is unlikely that this level will be under a threat, even if the going gets worse.

The week ahead: The reversal that took place from Wednesday’s low has halted the key resistance at 8,600 in the Nifty. Unless this level is surpassed, the short-term view will remain under a cloud.

Supports for the near term are at 8,300 and 8,230. Breach of these levels will drag the index to 8,125 or 8,002.

Sensex (26,818.8) With this week’s correction, the Sensex is down 8 per cent from its recent peak of 29,077. It is therefore too early to call ‘bear market’ and we will have to stick to the view that this is a pull-back in an ongoing up-move.

Immediate support band for the Sensex lies around 26,500 and 26,000. If the index manages to hold above this level, it will be a positive for the long-term trend. Breach of that level will get the next support at around 25,000 in to play.

Short-term trend will turn positive only on a close above 27,743. Next short-term supports are at 26,590 and 26,473 and 25,902.

Global cues While there was a sharp decline in global equities in the early part of the week, many indices managed to recover most of lost ground and close on a strong note.

The Nikkei, the DAX and the US indices are among the notable indices that managed to recoup lost territory. The change in sentiment in the US is aptly captured by the CBOE volatility index. The index declined from a three-month high of 23 — hit in the first week of November — to close at a comfortable level of 14. This shows that US investors and traders have shaken off the election blues and are comfortable in the Trump era.

The Dow Jones Industrial Average tore ahead in the days following the election, to close at an all-time high, with weekly gain of 5.3 per cent.

If the index manages to hold above 18,668 in the following days, it will be on the way to 19,000 or even 19,408. Interestingly, the S&P 500 is still off its life-time high, with milder 3.7 per cent weekly gains.

The gain in the Nasdaq was also much more subdued under 4 per cent.

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