Sunday, February 28, 2010

Technical Analysis - BSE Outlook 2nd March 2010

Sensex (16,429.5)

The positives and negatives of the Union Budget balanced themselves to have little impact on stock prices. But Pranab Da, in a very subtle way, pleased market participants by giving them what they wanted the most – a clear plan to revert back to fiscal prudence. It may be recalled that not outlining a road-map for curtailing fiscal deficit was one of the prime reasons for the 870 points plunge in Sensex on the Budget day 2009.

Higher disposable income in the hands of the small investor through changes in income-tax slabs was a bonus. Since the Government needs a buoyant stock market to meet its colossal disinvestment target of Rs 40,000 crore, market is unlikely to face any unpleasant policy changes, at least in the ensuing months.

FIIs were net buyers on Friday though they have net sold almost Rs 2,000 crore so far this month according to BSE data. Domestic institutions continued to sell through last week. Volumes remained buoyant through the week and spiked sharply higher in the budget session. Expiry of the February contracts has resulted in the open interest coming down to a more sedate Rs 88,000 crore.

There was hardly any movement in the Sensex in the first four sessions, as the index oscillated in a very narrow range between 16,200 and 16,300. Friday's surge led the index to the intra-week peak of 16,669 but it could not sustain there for long and ended the week below 16,500.

We had outlined three possible routes that the Sensex could take on the Budget day last week. The index followed the second path -unable to move beyond 17,000 and closing the week at 16,500. The Budget day is a non-event as far as its impact on the market trend is concerned since it has altered neither the medium or the short-term trend.

It is interesting to note the similarity of patterns in the charts of all the global benchmarks. The medium term trend is down in all the indices since the mid-January peak. A mild pull-back is currently on since the beginning of February. This pull-back has however not progressed sufficiently to signal the end of the January correction.

To put it differently, all global equity markets are moving in tandem and the fate of Indian equities are strongly interwoven with that of the other markets. Since the Union Budget has not been able to scratch even the surface of the market trend, it is back to watching Greece, US, China et al to decipher where we are headed.

The medium term trend in the Sensex continues to be down and inability to move past 17,000 keeps open the risk of the third leg of the down-move from 17,790 peak unfolding that drags the index down to 15,347 or 14,530 in the days ahead. The 200 DMA at 15,910 is the critical support that most market participants would be watching in the event of a decline. A strong close above 17,000 is required to negate the current bearish medium-term view for the index.

The short-term trend in the Sensex is up. But since it is nearing key resistances at 16,775 where the 50 DMA is also poised, investors ought to stay cautious. The index could get back to a lacklustre state in the week ahead and decline to 16,280 or 16,040. The near term view will turn overtly negative on a close below the second target. Resistances for the week would be at 16,670, 16,800 and 17,000.

Source BL

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