Thursday, February 25, 2016

Budget Expectations – Will Nifty manage to protect the multi-month channel support?

Indian equity markets topped out in month of March 2015 and crossed below the level of 7000 which no one thought is possible. A strong trend does not look at fundamentals like lower Crude prices or positive macro economic factors. It is only when the trend is due to change it will reverse. External events can only result into short term movement but eventually the major trend resumes.

Now look at the below chart of Nifty which shows prices have continued to move in downward sloping channel irrespective of the events, results or any other factors. This is one of the most basic methods of technical analysis that provides insight into the trend of the market along with crucial support or resistance.

Nifty daily chart:

The above chart shows the trend ongoing since March 2015.

Budgetary Expectations: Now many would be expecting a strong positive budget for reviving the stressed economy. Anything below expectation can result into serious capitulation. However, we believe that it will be perception towards the Budget outcome that will result into the movement. A good Budget will be perceived negatively if the sentiments are strong bearish and will result into break of previous low near 6870 levels. This level is going to be very crucial given the fact that it is very close to the lower trendline channel support.

On the other hand, a move back above crucial resistance level will result into a much needed relief rally. News will adopt and change based on the movement of markets and not the other way around. A positive move on Nifty back above 7255 will result into the focus on positive Budgetary outcome whereas break of 6870 will result into a strong negative news and how Budget fell short of expectations.

In a nutshell, it will be the movement of market that will define the news and Budgetary expectations. It is rare to see break below the downward sloping trendline on downside.

Let us see if the Budget is simply coinciding with the reversal due from the lower trendline support or the sentiments continue to be strongly bearish taking Nifty below 6870 which will be a real warning sign for medium to long term trend!

“The Financial Waves short term update” is a daily research report that shows Elliott wave counts along with other advanced technical concepts on Nifty and covers three different stocks. For subscription options visit Pricing Page.

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