The pre-Budget rally that has seen Sensex and Nifty touch unclaimed peaks this week may not sustain in the run-up to the D-Day, according to historical market trends ahead of the Budget.
“If history were to repeat, we should see a dip prior to the Budget announcement. So history advises traders not to chase prices higher this week,” says Anand James, Chief Market Strategist, Geojit Financial Services.
1) What is the best strategy to trade the market in the pre-Budget week?
For the last few years, pre budget week has seen Nifty reversing the prevailing trend that time. So, if history were to repeat, we should see a dip prior to Budget announcement. So history advises traders not to chase prices higher this week.
2) Friday’s session was all about IT stocks. Does the fresh up move look sustainable in the new week and whether it can raise short-term targets for Nifty traders as well?
The weekly MACD and Supertrend break which happened last week has catapulted the index into the race lane. The average RSI of 60% of the stocks in IT index is below 60 which is hinting at continuation of the current uptrend. We expect the upside to be led by TCS, HCLTech, TECHM, Mphasis and Coforge. Since TCS and HCLTech, which together forms around 10% of Nifty, any uptrend in these stocks could add more fire power to the index’s surge. However though it was IT index that kept Nifty up through the most part of Friday, it was Reliance that spear headed the giant leaps that characterised the day. Hence Nifty’s prospects next week hinges on multiple players, and not just one sector.
3) Would you take a long bet on TCS following the sharp upside seen on Friday or do you think the stock is now at overbought levels?
Being overbought is a deterrent during a trending phase, and Friday’s sharp upside presents a clean break off a multi week consolidation phase that sets up the trend nicely for a 4300 move and much beyond. However, the pause just near the record peak is an ominous sign and urges us to see off this mark, before riding the upmove, as usually such pause usually renders single day upmoves incapable of continuation. 4000, the base of the consolidation move may be considered a downside marker, towards that end.
4) Nifty Bank ended the week with 1% loss. What are the targets now?
Long legged dojis on both Thursday and Friday, each pointing to opposite directions is testimony to the fact that Bank Nifty has entered a crucial phase. Though price pattern is still held with in a flag, which would otherwise have signalled a continuation of uptrend, the negative crossover of MACD warns us against a potential break away from the current uptrend. That historically we have seen trend reversals in the week before budget, lends more weight to the pull back theory. Trading ranges have also narrowed as evidenced by shrinking Bollinger band, which prompts to play a slow decline to 51000 before re attempting upsides.
6) Are there any stocks under your radar which look overbought and why?
Several of our recent picks have been in overbought conditions, but we went ahead, because, such conditions only reinforce conviction about the direction and momentum, in a trending market. They become warnings though during oscillating markets. We are now in a trending phase, but we are always on the look out of when the momentum fizzles out, retiring the trend into a consolidation phase.
8) Give us your top ideas for the week.
SYNGENE (CMP – 742)
View – Buy
Targets – 770 – 805
Stoploss – 699
The parallel channel breakout move that we saw in April ’23 lost momentum in Sep ’23 and it retraced close to 61.8% Fibonacci level of the Oct ’22 low and Sep ’23 high. Bounce from the retracement level gained pace since May ’24 breaking above the declining trendline resistance of 720 last week. It has seen a Psar breakout in the weekly time frame and MACD exhaustion in monthly periodicity painting positive outlook for the stock.
JUBLINGREA (CMP – 599)
View – Buy
Targets – 635 – 668
Stoploss – 570
The reversal that started in March ’23 is still alive and it has crossed above Nov ’22 high this month. 14-week RSI is above 60 hinting at strong bullish momentum. It has seen a Psar and an MACD signal breakout in the weekly time frame supporting our bullish expectation in the next few months.
First published in The Economic Times
