Indian budget is due to presented on the Feb 28^th, 08. The stock markets have started reacting to the pre-budget signals, presumptions, and expectations as given out by the trader’s positions. There are many claims that the pre budget rally has begun. If we take a look at the BSE Sensex chart for the past three months it is easy to guess where this pre-budget rally is leading to. No where! Hold at least the MACD has given a whiplash and may again signal buy shortly.

 Have a close look at the chart. We can easily see a distribution pattern that is usually seen when the markets are at their peak or bottom. The emergence of such a pattern was very much expected as the FIIs had done nothing but selling since the market peaked mid January 08. The domestic MFs were the largest buyers but their support was not so reassuring to the short term traders, who seem to make more profitable sell deals.

 So will we see a post budget rally? It is easy guess that this budget is unlikely to be people unfriendly. Therefore more taxes are unlikely. There will sops especially to the exporters, farmers, unemployed and lastly to the salaried tax payers. The budget will also signal the start of soft interest rate regime. If we put this together we should look at this market as an opportunity to accumulate and sell post budget. This is a very tempting trading position. . But then you must buy close the near term market bottoms. For short term traders the stop losses must be around 2- 3% of their trade price as the upward movement is unlikely to be more than 5%. However, a day trader still can make money from buying side as long as the trades are done after previous bottoms are broken – a weird trading method as this is a sideways market.

Banking, infrastructure, pharmaceuticals and textiles are likely to good sectors to be in the buy side till budget day. The traders can decide to close out or continue based on the policy measures spelt out in the budget. Thereafter follow the FII path and buy or sell as they do. February and March are not the months in which the domestic savers will pour money on stock market unless the policy changes are dramatic and not cosmetic. You only need to look at the lackluster primary market to go against medium or long term buy in this market.