How Nifty is set up for trade on Budget day; breakout expected above 21,850

21,500 on the downside & the 21,800 on the upside will be the two key levels to watch out for ahead of the budget announcement

Indian benchmark indices Nifty, Sensex are likely to open on a positive note despite mostly lower Asian markets and negative US markets. As investors brace for Finance Minister Nirmala Sitharaman's Budget Speech later in the day, analysts expect markets to be volatile. Investors may remain cautious as the street interprets the announcements of the FM and later analyses the effect on the economy and markets.

The market clocked nearly one percent gains on January 31, and broader markets rallied more than 1.5 percent ahead of the budget day, thanks to banking stocks. Nifty 50 recouped almost all its previous day's gains in the rebound.

After recent recovery from 21,137, the Nifty 50 faced significant resistance at 21,750-21,850 area. If the index manages to close decisively above 21,850 on the budget day and sustains there for few days, then the psychological 22,000 mark can't be ruled out in following days, while the 21,500 is the near-term support and 21,300 is expected to be crucial support for the index, experts said, adding though the significant volatility during the speech may be a possibility.

On January 31, the BSE Sensex climbed over 600 points to 71,752, and the Nifty 50 jumped over 200 points to 21,726, while the Nifty Midcap 100 and Smallcap 100 indices gained 1.6 percent and 2.25 percent respectively.

"It would be crucial to see which side the index gives a breakout. A closing above 21,800 could lead to a continuation of the uptrend where the index can then rally to mark a new record high again. On the flipside, the above-mentioned moving average support at 21,300 remains a crucial support for the index," Ruchit Jain, lead-research, at 5paisa.com said.

The market breadth as of now is positive. Thus he advised traders to trade with a stock-specific approach and look for directional trade in the index on a close beyond the above-mentioned range.

Ashwin Ramani, derivatives & technical analyst at SAMCO Securities, too, feels the 21,500 on the downside & the 21,800 on the upside will be the two key levels to watch out for ahead of the budget announcement today.

According to the options data as well, strong Put writing (bulls’ entry) with Call writers (bears) exiting was observed at 21,500 strike in Nifty. Put writing at a particular strike price, is usually considered as a sign of support getting stronger and strong possibility of prices moving higher. The Put writers have further strengthened their position at 21,500 strike in Nifty.