Our hope of a sedate jog to the Union Budget appears unlikely given the violent jig in stock prices last week. Stocks first plummeted lower dragged by slowing economic growth rate in China and the Congress debacle in the Assembly election. Then prices whooshed higher on Friday, probably due to the effect of Holi's ‘rang' and ‘bhaang' .
There was plenty to depress market watchers too — slowing exports growth, widening trade deficit, depreciation in rupee and crude oil at elevated levels.
The budget week is here and investors will be engrossed through the week with the Railway Budget, the Economic Survey, the Union Budget, the Monetary Policy and other macro data such as the Industrial Production numbers for January and headline inflation for February. Market also has to react to the RBI's surprise cut in CRR on Monday morning. No points for guessing that it is going to be one wild ride for investors next week. Fortunately Euro zone's troubles appear to have abated, at least temporarily, giving us some respite from that bug bear.
Volume in the cash segment was low. Derivative segment recorded sharp spike in volume on Tuesday. FIIs continued to be net buyers this month as well. Open interest accumulation is not too high at about Rs 1, 20,000 crore, implying that traders are not too sure about the direction in which the market will move after budget day.
Oscillators in the daily chart declined into the negative zone, in line with the ongoing short-term downtrend. Weekly oscillators continue in the positive territory implying that the medium-term trend continues to be up for the Sensex and the Nifty. The hammer formation in the weekly chart of the Sensex and the Nifty means that a short-term trough could have been formed last week.
The Sensex (17,503.2) tumbled to the intra-week low of 17,008 before Friday's recovery helped it close with a mild 133 points loss. The index is half-way through a correction and is well positioned to gyrate wildly in the upcoming sessions. The Sensex can move higher to 17,586, 17,765 or 17,944 in the run up to the Budget. Reversal from either of these levels will result in the index moving in a range between 17,000 and 18,000 in the upcoming week.
Short-term supports for the index would be 17,008, 16,829 and 16,429.
Nifty (5,333.5)
The Nifty declined to the intra-week low of 5,171.5 before closing 26 points lower. The index breached the key support at 5,231 briefly but managed a close above it.
In the near-term, the Nifty can move higher to 5,346 or 5,454 if the pre-budget excitement continues. Traders can initiate fresh short positions on reversal from either of these levels. Downward targets will be 5,171, 4,995 and 4,950.
Most global benchmarks held on to higher levels, though they closed slightly in the red. China's Premier, Mr Wen Jiabao, cutting the country's growth target to 7.5 per cent this calendar dampened sentiment across global markets in the early part of the week. However CBOE VIX traded between 16 and 21, denoting that investors were not too worried.
The Dow too ended the week 55 points lower to end below the 13,000 mark. The formation on the weekly Japanese candlesticks chart over the last three weeks denotes loss of momentum. But there is no outright reversal in this index yet.
Near-term support is at 12,374. The index needs to close below this level to signal that the short-term trend is reversing lower.
Signposts for the Budget-day
Budget is one of the market moving events that can affect the medium-term trend in the index. If the Finance Minister makes dire pronouncements that give market a jolt, the index can collapse to 16,430 after the Budget.
This is the medium-term trend deciding level. Investors can stay sanguine as long as this level holds. But the floodgates of selling will open if the index breaches this level.
There will then be the possibility of decline to 15,358 or 15,135 in the period after the Budget.
The key medium-term support for the Nifty is 4,950.
We will have to assume that the long-term trend has resumed only if this level breaks. Subsequent targets would be 4,695 and 4,588.
What if the Finance Minister removes STT or gives some other surprise bonanza to investors?
In such a scenario, the Sensex can shoot higher to the recent high at 18,523. Target on break above this level are 18,826 and 19,093.
First target for the Nifty on a euphoric reaction to the Budget is the previous peak at 5,630. Targets on break above this level are 5,647 and 5,850.