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The Budget blues
By Salim Dawoodhani

Maxims Of The Week

  • Success is the result of foresight and resolution, foresight depends upon deep thinking and planning and the most important factor of planning is to keep your secrets to yourself.
  • So long as fortune is favouring you, your defects will remain covered.
  • There is no greater wealth than wisdom, no greater poverty than ignorance; no greater heritage than culture and no greater support than consultation.
  • Value of each man depends upon the art and skill that he has attained.
  • I appreciate an old man's cautious opinion more than the valor of a young man.
  • One, who imagines himself to be all knowing, will surely suffer on account of his ignorance.
  • Since the past few weeks, the markets were desperately waiting for a trigger to propel the indices northward. With uncertainty and confusion prevailing on the global bourses, the market-men were looking forward to the Union Budget to give the much-needed bullish impetus to the stock markets.

    Unfortunately, this year's budget has turned out to be a non-event and it has failed to enthuse the Stock markets. The bourses were tentative on the budget day and the next day, anticipating something encouraging in the fine print. However, when even after reading between the lines the experts did not find anything that could boost the market, they eventually gave up. Therefore, the better part of last week saw some real distress selling.

    Thus, the Budget has in fact acted as a catalyst for a sharp decline.

    And once again the focus has shifted to Iraq and the US. Finally, the uncertainty of the war is taking its toll on the Indian markets as it has of the major global bourses.

    Technically, 3190 was extremely crucial for Sensex. Last week's bearishness and persistent selling pressure resulted in a downside breach of this cushion.

    Along with this level the Sensex also breached the crucial 89-Day Simple Moving Average and the 200-Day Exponential Moving Average.

    Since the last few months, 89-Day Simple Moving Average had been acting as the intermediate term trend decider for the Sensex. Therefore, its downside breach could spell bad news for the bulls. To aggravate the situation further, a flag formation got manifested on the daily chart of the Sensex. The Flag is a continuation pattern implying that the trend that was in existence prior to the pattern continues once the formation is complete. In this case, the bearish trend that was in place prior to the flag formation and the same is expected to continue.

    The measuring implication of this pattern gives us a target price of around 3030 for Sensex. This is also close to 3052 that is the 61.8 per cent Fibonacci retracement level of the previous rise of the Sensex from 2828 to 3416. Hence, some decent buying can be expected at around these levels.

    In the interim, minor support at around 3120 is also not ruled out. However, any immediate pull back by Sensex is likely to fizzle out in the vicinity of 3200.

    Considering the bearish outlook, one needs to adopt protective measures for the portfolio, which can witness significant erosion. Even if Sensex were to drop by a further 100 points, many of the weak counters are likely to bleed much more. Therefore buying of Put options now and on small pullback attempts may stand in good stead.

    (The author is a Professional Technical Analyst. For consultations, he can becontacted by e-mail at : [email protected]).

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