Tech View: Get set for post-Budget breakout

MACRO TECHNICALS

A lacklustre week ended with net losses across most sectors except for IT stocks, which saw a small recovery. The Nifty closed at 5,110.75, down 3.62 per cent while the Sensex was down 4.23 per cent at 17,349 points. The Defty was down 4.4 per cent and the Junior was down 3.71 per cent while the NSE Midcaps lost 1.69 per cent.

Background signals were poor. Volumes were low and advances were outnumbered by declines. The BSE500 was down 3.3 per cent. FIIs were net buyers, domestic institutions were net sellers.

Outlook: Next week is likely to see the continuation of range trading in the early stages with high intra-day volatility. Since the Nifty is on reasonable support, it is likely to move up a bit, hitting resistance at 5,350-5,400. The Budget next Friday could provoke a decisive breakout in either direction.

Rationale: This has been a low-key settlement with very low volumes. The market has remained stuck inside a broad trading range of 4,800-5,600. It is now sitting on decent support along the 200 DMA and an up-move seems slightly more likely than a continued downtrend.

The Budget is usually a big enough event to set a new trend. While possible post-Budget direction is difficult to read, it could easily cause a move of 10 per cent, especially if it brings volumes back into the equation. A volume expansion is again, somewhat more likely to lead to a rise than to a fall.

Counter-view: The market is hovering just above the 200 DMA. If it closes below that and then breaks the support at 4800, it could be a long-term bear market. One positive is that expectations from the Budget are not very high