Indian investors are in for some edge of the seat excitement next week. The Finance Minister will move to the centre stage to present the most awaited event of the year — the Union Budget — on Thursday. The Railway Budget on Tuesday and the Economic Survey to be tabled in Parliament on Wednesday will set the mood for this event.
We also have a derivative expiry thrown in to add spice to the proceedings.
Most investors have rightly retreated to the sidelines to sit out the action in the sessions leading to the Union Budget. Stocks attempted a feeble rally in the early part of last week only to succumb to selling pressure towards the weekend.
The sell-off was caused by fears of the Federal Reserve cutting back on its bond buyback programme.
The fears of the negative impact of this move on FII flows sent stock prices reeling lower on Thursday. The Sensex lost 317 points and the Nifty lost 91 points in that session.
There was plenty of action globally with Moody’s downgrading UK’s credit rating from AAA to Aa1 citing the country’s increasing debt and slowing economic growth as the reasons and European Commission warning of continued euro zone slowdown in 2013.
But even as developed markets retreated from recent highs, Asian markets such as Indonesia, Pakistan and the Philippines partied with benchmarks in these countries recording new life-time highs. Cash volumes in the domestic market were subdued in the early part of the week but gathered pace in the second half. Derivative volumes spiked on the day the market crashed.
Index put call ratio has declined below 0.9 indicating an oversold market. Open interest has increased above Rs 1,50,000 crore.
Daily oscillators continue to move deeper into oversold zones as the downtrend continued last week. The sell signals beginning to pop up in weekly charts are also a cause for worry.
The > Sensex(19,317) once again failed to move above 19,750, reversing lower from the intra-week peak of 19,742. The sideways move between 19,400 and 19,750 appears to be the second part of the correction that began from the 20,172 peak in the Sensex. If the third wave of this sequence started last week, the downward targets would be 19,255, 18,955 and 18,468.
The index is currently halting at the first target. But failure to move beyond 19,750 in the early part of the week will imply that the index could move lower to the second or even third target.
Conversely, a strong close above 19,750 can take the index to 19,857 or even 20,203. This can happen if Chidambaram manages to present another dream Budget.
Medium-term trend in the index has not reversed yet. We maintain the view that a strong close below 18,500 is needed to signal that the correction can get deeper pulling the index lower to 18,000 or 17,450. Investors need to watch out for reversal from the 18,500 level if the market gets disappointed with the Budget.
The >Nifty (5,850.3) hit the intra-week peak of 5,971 before reversing to close 37 points lower for the week. It is possible that the third wave down from 6,111 peak has begun last week. This wave has the downward targets of 5,827, 5,739 or 5,595.
Short-term traders can continue to hold their short positions with stop-loss at 5,930. Targets on breach of this level are 5,971 and 6,008. We need a strong close above 6,010 to signal that the short-term trend has reversed higher and that the index can move on to new highs above.
There is no alteration in our medium-term view. The medium-term trend in the Nifty continues to be up. This view will reverse lower only on close below 5,600.
Global cues
Global stock markets declined sharply last week. Sentiment indices such as CNN Greed and Fear index and CBOE volatility index retreated slightly from very bullish zones.
The Dow lost 101 points last week but it remains in the narrow range between 13,900 and 14,000 as indicated in our last column.
We retain a positive view on this index as long as it trades above 13,730. Targets on a break above the upper boundary at 14,050 are 14,198 and 14,434.
Gold breached the medium-term support last week to close $33 lower. Initial target for the yellow metal is the May 2012 trough at $1,527.
Targets on a breach of this level will be $1,450 and $1,402. As indicated earlier, we will maintain a positive long-term view for gold as long as it does not break below $1,450 emphatically.
Decline to this level will be a long-term buying opportunity for investors.