27 February 2007
market snap
Technical analysis of budget scenarios Sensex can stabilise above 12870 and Nifty above 3723 even if there is a knee-jerk reaction to Budget. The Union Budget presentation is the most eagerly awaited event in the calendar of the Indian stock market. It has been observed on many occasions that large medium term moves are completed in a matter of seconds on the Budget day. On the eve of the presentation of the Union Budget for 2007-08, we try to chart the route that Sensex can take after the budget announcement. Bullish Budget Let us start with a bullish scenario, that of the Finance Minister, including some pleasant surprise in his Budget document that gets a thumping ovation from the markets. In this situation, wait for Sensex to rally above its previous high of 14723. If this happens, it would mean that the move from December 6, 2006, was a consolidation and the third leg of the rally from the July 2006 has started. Third legs, as we all know, are powerful and swift. The upward target of this move would be 16926 and then 18148. A post-budget rally that fizzles out below 14300 would mean that a significant peak has been made at 14723 and Sensex will head towards 13000 again. Nifty needs to rally past its previous peak at 4245 in order to zoom towards 4678 and 5200. The interim resistance that needs to watched out for is at 4120. Failure to overcome 4120 would mean another slide down. Neutral Budget The second scenario is one of a no-impact budget. Since, most of us have already guessed what the budget document is likely to contain, it is highly possible that the markets give a snooty `so what?' kind of a response to the budget presentation. In this case, we expect Sensex to recover from the 13000-level and try to cross above 14000 once more. This situation would keep Sensex oscillating in the band between 12800 and 15000 for a few more weeks before a clear direction emerges for the market. The band for the Nifty in case of a neutral budget would be 3700 and 4300. A Bearish Budget A bearish scenario in which the FM manages to irk the already frayed nerves of the market can cause the current down trend to aggravate. In this case, the important support that investors should watch out for is 12871. If Sensex manages to recover above this support, it can spend a few more weeks consolidating between 12870 and 14720. Such a sideways move would be a precursor to the next leg of the impulse wave that takes Sensex higher towards the targets mentioned above, 16926 and 18148. In other words, investors have nothing to worry if Sensex manages to sustain above 12870. But a fall below 12870 would mean that a more serious long-term correction is on. Sensex can then head towards 11186 or even 10219. The corresponding intermediate term support in the Nifty is 3723. The intermediate term outlook will get seriously jeopardised if there is a sharp fall below this level. Nifty would then head for 3400 or even 3252. To conclude... : The Union Budget presentation is an event that has heralded a change in the long-term trend in the market on more than one occasion. This translates in to violent moves after the budget, both up and down. Since men are an optimistic bunch in general and the stock market fraternity are several degrees more so than the rest of their brethren, they tend to build large positions in the hope of a strong post-budget up move. This results in sharp falls once the budget fails to live up to the expectation. Our markets have been in a consolidation mode since December 2006. While classic trend followers would view this as a pre-cursor to the next leg of the long term bull market, there is a fine line that separates a sideways move that is a continuation pattern from a sideways move that is a terminal pattern. We would like to side with the trend followers and think that Sensex would stabilise above 12870 and Nifty above 3723 even if there is a knee-jerk reaction to the Budget. That would retain our hopes of the Sensex rising beyond 16000 in 2007. Mr FM, we hope you will oblige!by erectusplus at 17:34:00 |
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