Post-Budget technicals look weak

Thursday’s Budget appears to have impacted various stock market indices differently. The following analysis shows how.

S&P BSE Sensex

The violation of 19152-19312 price cluster is a crucial event suggesting that the current correction is likely to manifest into a strong bearish trend.

As can be seen from the chart, the Sensex seems to be in an uptrending channel and the current correction has occurred after a failed test of the upper boundary.

A short-term trend line has been violated while the relative strength index (RSI) has firmly given away the natural support at the 40 level. The break of all critical technical support suggests larger correction underway with downside targets of at least 17430.

S&P BSE metal Index

Major breakdown of crucial supports seen in the BSE Metals Index which is also seen in the charts of most other metal stocks like Tata Steel and SAIL. This sector never really entered a bull phase and continues to show all the qualities of further weakening of the trend.

S&P BSE PSU Index

From a technical perspective, this is probably one of the weakest indices in the BSE universe. The second part of the 2012 rally was a tiresome advance forming an Elliot Diagonal pattern (topping formation) on the daily charts which coincided with the top of early 2012 rally. Diagonal patterns are highly bearish patterns and are usually seen preceding such sharp price moves.

The price cluster of 7297-7403 was the make-or-break level which has been decisively violated followed by the breakout of two important trend lines which provided minor support for the past couple of days.

The immediate minor support is placed at 6400 levels which is still about 10% lower from current levels.

S&P BSE power Index

Another index which has been showing weak technical strength for the past couple of years. The chart shows a major breakdown from a double-bottom pattern.

S&P PSU Banking Index

This is a synthetically created chart of PSU (public sector undertaking or state-owned) Banking Index which shows a very bearish flat pattern completion. The RSI formed an ‘M’ top near the bear market boundary of 65 which is classic bear market action.

Expect vicious downside in the sector along with stocks like Bank of Baroda, Canara Bank and Union Bank.

The writer is an analyst with Violet Arch Securities