Sunday, June 28, 2009

Pre-Budget Upmove

Markets recovered smartly from 4143. Is the market gearing up for a pre-budget rally?

1. The rains have been delayed. The Met dept now talks of 93% of normal rains with a error rate of 8%. So we may go from 101% of normal to 85% of the rains. The picture isn't clear yet, it will take at least 2 weeks for the picture to be clear.

2. There are sky high and unrealistic expectations from the budget. From disinvestment to tax exemptions limit increasing. 1 thing to keep in mind is the fiscal deficit in mind. The government needs money. Money to subsidise fuel, money for drought relief if the monsoons fail.

3. However good the budgets may be, the rally usually peters out after a week of the budget. It would be Sell on news event.

4. FIIs have pulled 3840 crores in 2 weeks. But thee markets have not corrected much. The DIIs are supporting the markets, like they did in March.

5. All this would work, if the monsoons are almost normal. If the monsoons fail, then all this propping would not do.

6. Now is the time to get out of all the risky stocks and stick to quality. Speculative stocks do not give any exit points.

7. Technically, if the market reverses from 4500-4550, we have the H&S formation which would entail a sharp drop.The markets can go up higher and negate this pattern. The 4500-4550 range on nifty will be the zone to watch.Also the e leg of the triangle should be less than c leg (4693-4092= 600 points). This gives a range of 4450-4700.

8. In the absence of any immediate negative triggers, next week could be a positive week. The budget is on Monday, 6th July which will decide if we keep rising or some more time or tank immediately.

9. Time analysis wise, 15th July is an important turn date which would decide the trend for at least next 3 months.

10. The government is making all the right noises and I expect a good budget.

To sum, I expect the up move at least until the budget. If the budget is good, then correction would get delayed by 1 or 2 weeks (the monsoon picture would get clear by then), else correction post budget. Markets rise on hope and correct on news.

Great Budget + Good Monsoons = 17000

Good Budget + Average Monsoons = 12500

Bad Budget + Poor Monsoons = 10000

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