Budget 2018: Afraid of volatility? Here is how to position yourself ahead of the big event

The index appears to be in a classic melt-up phase with a little concern for valuations.

 

It has been a roller coaster ride for the bulls in the second week of January. The index rose to fresh record highs and rose 2% for the week ended 19 January? Do you think the momentum will continue?

The index appears to be in a classic melt-up phase with a little concern for valuations. Interesting thing is that laggards like IT and Pharma have also started contributing thereby strengthening the bullish sentiment further.

Even ICICI Bank and Axis Bank have also suddenly discovered life and vying to make new life time highs. Most of the mid and small caps across the board are getting locked in circuits.

I am afraid to say that too much money may be desperately chasing for opportunities irrespective of earnings quality which may have futile ending going forward.

How should one position themselves before Budget?

In 2016 and 2017 markets entered into Budget event with a multi month corrections and hence market rally on the back of good economic legislations can be justified then.

Now, the market is entering into the budget event with a relentless up move. Post budget, if the market sustains above breakout points of 10900 then momentum may take it towards 11,600.

How is the market looking on the weekly as well as monthly charts?

In the current month there is a bigger breakout on monthly charts, above the 9-years old ascending channel with multiple touch points which is projecting a huge target of around 13,200 for Nifty.

This breakout will remain valid as long as Nifty sustains above 10600 mark on monthly closing basis.  So post Budget, if Nifty were to settle above 10600 levels going into March also, I think, this kind of lucrative targets are quite possible going forward may be in next 12 – 18 months.

Weekly charts are also strong and shall register a breakout on a close above 10900 levels. Then more realistic target of 11600 can be achieved in and around budget time.

What should be the strategy -- buy on dips or sell on rallies in the coming week?

At this point in time, especially when we are seeing vertical upmoves, traders should not get carried away and throw caution to the wind. In our opinion maintaining cautiously optimistic stance is better rather than outlandishly taking a bullish stance.

Things on directional front can be much clear if we doesn’t violate critical supports post budget.  In simple words on corrections if the support of 10600 is not violated on closing basis then that should be utilised to go long. Best strategy is to remain sidelines as we head towards budget event.

Top 3-5 stocks (with timeframe) which are looking attractive at current levels based on technical?

ITC: BUY| Target Rs310| Stop Loss Rs260| Return 13%

Technically this counter appears to have registered a durable bottom around 250 levels. Since then it is strengthening its moves on the upside with breakouts after brief periods of consolidation.

Hence, sustaining above 260 levels this counter should be heading to test its huge gap zone of 320 – 292, it registered on 18th of July 2017. Hence, in the next three months it can trade around 310.

Positional traders can go long into this counter with a stop below 260 on closing basis for a target of 315 which is close to 62% retracement level of entire fall from 367 – 250

Bajaj Finance: BUY| Target Rs 1800| Stop Loss Rs 1632| Return 6%

The way this counter has rallied in Friday’s session after approaching close to its 200-days Moving Averages is suggesting that it might have posted a bottom in the session around 1632 levels.

Hence, there appears to be a high conviction trading opportunity in this counter with a stop below Rs 1632 on a closing basis for a target of Rs1800.

Canara Bank: BUY| Target Rs 395| Stop Loss Rs 350| Return 9%

After testing the upside gap zone of Rs 349 – 320 registered on 25th October 2017 this counter appears to have posted a decent bottom at recent low of 335 and appears to be on the verge of a fresh breakout.

The momentum propelled by a breakout shall pick up into this counter on a close above Rs 365. Hence, traders should buy into this in anticipation of such a breakout for a target of Rs 395. A stop for the trade should be below Rs 350 on closing basis.

MORE WILL UPDATE SOON!!