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One thing is certain today would be a highly volatile day for 1) today is the Budget day, 2) this is a long weekend for Indian market since Monday is a holiday due to Holi festival, and 3) the last settlement in F&O has been one of the flattest in recent memory. We can say that the market is actually looking for an outlet to release its coiled-up energy, and what could be a better opportunity to do it than to express its reaction to the most important annual government announcement in the form of the Union Budget.

I agree with the BloombergUTV channel’s stocks editor, Rahul Arora, that in all likelihood today we might see a test of the range between 4700 and 4950. He is also right, perhaps, in saying that if the boundaries of either 4700 or 4950 are not tested today it would not be tested in the near future as well. Think about it: market is either happy or disappointed with the budgetary provisions and the directions given by the Finance Minister for the fiscal policy going forward and the market must express today itself since it is a fast discounting mechanism. While we may analyze the Budget threadbare for the next three days starting tomorrow at our leisure, no speculator would like to keep things hanging for such a long length of time. It would be rather too risky to do so. Thus, whatever happens we would, in all probability, see wild mood swings during the trading session.

Coming to talk about the levels we should be watching like a hawk are 4826 on the downside and 4891 on the upside. If the Nifty stays below 4826, chances are would see a sell-off that might take it down to test 4762 as the first destination. This is likely to be a strong support level; however, if it is broken then the Nifty tests its 200-day EMA at 4731 for the first time in the last 10 months. Any breakdown below the support area between 4731 and 4719 would take it below 4700 and the Nifty then would seek support at the 200-day Simple Moving Average located at 4677; however, even if there were to be a wild swing we do not think that the Nifty would break the support at 4649 today. This is kind of a Chinese Wall for if is broken our market cracks like nobody’s business. And any breakdown below 4584 would mean bears engraving their dominance very firmly. These are levels to watch out for on the downside today and in the next few days.

On the upside, if we manage to put the Nifty beyond 4891 decisively the next significant level would not be 4913, it would be 4945. The range between 4934 and 4945 would clearly decide that what happens to the shorts which had mostly enjoyed the field day all this while. If the Nifty moves above 4945 and stays there bears would suffer in a big way since our market going down is just like a chronicle of a death foretold. There would be rampant short covering.

We believe March clearing is going to be one clearing where most option writers would lose their money earned in the last couple of months unless they hedge it properly for this clearing has always been known to be a directional one as opposed to be a range bound one. Here, all kinds of high falutin mathematical finance based algorithmic trading oriented option strategies are likely to face a black swan event in March. Be on your guard, if you want to write (sell) options this clearing.

Further up above 4950, the resistance levels are 4993 and 5020.

Rajat K. Bose