The market opened last week on an extremely bullish note and never gave up. I had hoped for a rise on Monday and Tuesday and then a fall. However, after the bulk of rise on the first two days, the market was up every single day of the week, a record of sorts. The sensex rose 100 points in the week, easily went over the first resistance at 3280, pierced the second resistance at 3310 and closed a shade lower for the week. Is bullishness back'
Price movement and lack of selling suggest so, though the rise was on thin volumes and the market breadth (advance versus decline) was negative for three of the five days, including on Friday when the close was strong. This week was wait and watch, before the budget, making it a very dull three weeks of trading this month. Over the past three weeks, the index has moved in a range of 100 points. A big move either way is now on the cards.
This week the market will be entirely driven by budget expectations and volatile moves in specific stocks. This year’s expectations are running high on hopes of tax cuts in various product categories like consumer goods and automobiles etc.
There are also hopes of cuts in corporate and personal taxes. It is widely believed that we will get a feel-good budget that will also include the announcement of changes in foreign institutional holding in banks. The budget session is also expected to pass the Electricity Reforms Act that will supposedly favour electricity boards and equipment suppliers.
Buying in stocks like Bharat Heavy Electricals Limited (Bhel), State Bank of India and others are all based on these hopes. Maybe we will get these goodies which all have a short term utility to keep the market higher.
Maybe these will come and the market will be euphoric. A good strategy would be buy both put and call for stocks that are supposed to benefit from the budget proposals like Bhel, SBI, Telco and Hindustan Lever Limited. Calls and puts on the nifty at strike prices of 1080 and 1050 look good bets too. For more cautious investors it would be wise to stay out and watch what the finance minister does and, more importantly, what the market does to the FM’s proposals. For the market to move up, it will have to pierce the 3320-3335 area with ease.
We may then hit 3500. Conversely, a close below 3280 may signal a major change in trend.