All Eyes on the Budget

It was a rangebound week with markets trading in a band of 150 points. The only folks who made money this week were the option writers. Lets see what the next week brings for us.


Fundamentals:
1. The REC IPO will suck out money from the Domestic institutions.The Domestic institutions were sellers the past 2 days.

2. The FED in a surprise move increased the Discount rate by 25 points. The rate at which member banks may borrow short term funds directly from a Federal Reserve Bank. The discount rate is one of the two interest rates set by the Fed, the other being the Federal funds rate. The Fed actually controls this rate directly, but this fact does not really help in policy implementation, since banks can also find such funds elsewhere. also called discount rate.

3. This may be the start of the tightening policy in the US. The dollar strengthened and Dollar Index is at about 81. Dollar indiex is inversely proportional to the Indian Stock Market. The Index was 89 when our markets bottomed and at 74 when our markets hit the October highs. The Index has got back half the losses it made.

4. The Dollar Carry Trade would be dead. Borrowing at low interest rates i US and putting that money to work in India does ot work when the Dollar is rising.

5. The Budget is expected to get rid of some of the stimulus measures. Expect selling in the markets if the stimulus measures are curtailed.

Technicals:
1. Heavy Call Writing at 4900 ad 5000 levels. Put writing at 4700 and 4600 levels. The max OI is at 4800 strike price when both Puts and Calls are added up. This means the expiry should be around 4800 +/- 25 points.

2. The Short term Gann charts resistance at 4915 was tested this week. Next support comes at previous lows.


3. The long term Gann charts offer support at around 4740.



4. The markets breached the 20 ema on its way up but for the second time was resisted at 100 ema. Have a look at the long term charts and see the significance of 100 ema.



5. Next week, expect a range bound movement till the budget.

6. If 5310-4675 was 1 wave down, 4675-4930 is 40% retracement of that. The Wave 3 may have started or if wave 2 a was 4675-4930, b 4930-4802, c could be 5057.

If the stimulus stays, short term rally else fall continues.