Will it be last nail in coffin for bulls or a rise from ashes? All eyes set on Finance Ministers ledger!

Indian equity markets started the new calendar year 2021 on a buoyant note and traded with a bullish bias for the majority part of the month of January.  

However, the rally of the first three weeks got engulfed by a fierce sell-off, which was witnessed in the last six trading sessions. As a result, Nifty recorded one of its worst weekly and monthly performances in recent times. On a monthly basis, Nifty came off by 2.5 per cent and on a weekly basis, it tanked 5 per cent. The broader market indices, Nifty Midcap-100 and Smallcap-100 ended the week down by 3.5 per cent and 2.3 per cent, respectively. All the sectoral indices too fell sharply. Nifty IT declined by 7 per cent while the Auto index fell by 6.7 per cent. On Friday, FIIs sold for the fifth straight day in a row, and this was their longest selling streak since September 2020.   

Nifty, which was lacking any follow-through selling on the daily timescale has witnessed the formation of a sizeable bearish candle on the weekly chart, following two candles that were spinning top along with the one with a large upper shadow. This resulted in the confirmation of a reversal pattern on the weekly chart while, on the monthly chart, it formed a ‘shooting star’ pattern.  

Nifty has corrected 7.8 per cent from its all-time high of 14,753.55, which is its highest fall pointwise and the third biggest fall in percentage terms since March lows. A fall above 10 per cent is categorised as a correction. Now, with the last six days of fall, Nifty is giving many bearish signals. To begin with, Nifty has closed below the 50-DMA and at the same time, it closed below the 61.8 per cent retracement level of the recent upswing. Further, the trajectory of the 20-DMA has shifted.   

Now, going forward, the prior swing low of 13,131 is likely to act as strong support as the trend line support is also placed around these levels. On the upside, immediate resistance is placed in the form of 50-DMA (13,743). However, we would ask readers to stay cautioned since historically, volatility is very high during the Budget day. For faint hearts, trading during the Budget is not an easy task but if you are a seasoned trader and know how to hedge or adjust your position as per the market moves, then it is wise to trade, or else, it’s better to be on the sidelines.