Pre-Budget week to see higher-than-normal volatility

The week saw a positive close as compared to the previous week but the last trading session of the week warned of heightened volatility in the offing.

The week-on-week volumes were lower as trader participation was truncated on upthrust days, which was an early warning of the unsustainability of the upthrust.

The weekly combined exchange market breadth was negative as the figures were 12,258 : 9,099. The capitalisation of the same on a commensurate basis was positive as the figures were
Rs48,912 crore : Rs31,565 crore. The NSE gained Rs174,813 crore in market capitalisation over the previous week. In terms of sectoral performance, the banking sector was the star of the week and was followed by the midcap and technology sectors.

Overseas investors were net buyers to the tune of Rs490.1 crore as per the data available with Sebi and that saw the Indian rupee end the week at 45.19 levels vis-a-vis the US dollar (previous week 45.68 levels).

The US markets saw the benchmarks scale new highs as the buying support extended and the DJIA closed at its highest weekly close after week ended May 30, 2008.

The UK FTSE 100 too made similar highest weekly closing after week ended May 23, 2008 highlighting the underlying strength in the western markets.

In the Asian region, the Hong Kong and Chinese markets led the bull charge, followed by Japan and Singapore which brought up the rear. The overseas cues remain optimistic and the domestic markets will have to find their own positives internally to rally in the coming week.

Technically, the markets have bounced off their medium term trend lines on the weekly charts and the last day’s selloff notwithstanding, the week-on-week outlook remains cautious but optimistic. The pullback rally I have been advocating for the last two weeks is under threat but not completely terminated as yet.

The weekly range advocated for the Nifty at 5125-5600 has held as the Nifty fell exactly from the 5600 levels on Friday.

This week is likely to witness a range of 5750 on the upsides as long as the bulls keep the Nifty above the 5500 levels.

On the downsides, the support is likely at the 5175 levels as long as the Nifty remains below the 5425 levels consistently.

Since this is a pre-budget week, coinciding with the February series expiry, volatility is likely to be higher than normal. I suggest all fresh trades be on thin exposure as whipsaws are likely to be commonplace.

lachman.ramchand@gmail.com