Weekly Outlook Of Nifty from 11th June-15th June

Last week I had mentioned for a quick investment return, near 4624 for eventual test and break above 5000; also mentioned that if nifty breaks 4757 it would create panic selling till 4624 and even 4538. Finally 4757 the key support provided salvation for the bulls placing a low of 4760 and as predicted panic buying was seen providing biggest percentage gains since the beginning of 2012.

During the week Index behaved exactly as expected. On Monday, Nifty opened at 4775 and after placing a low of 4760 it started moving up. It then managed to sustain above this crucial level of 4757 and then as predicated Bulls were in full form.

Lot of talks about rate cut announcement by RBI by 25 bps. However lot will depend on the IIP and inflation numbers next week. Nevertheless it acted as a strong positive trigger and it can still act more strongly if there is any rate cut but do not forget that governor had already hinted about less room for further rate cuts in 2012. Globally, the disposition seems to be positive by expectations of another round of harmonized monetary easing by developed nations. Now the next question is whether the rally is sustainable?

Technically, the weekly chart of the Sensex has given a sharp pull back to the trend line. And technically such pullbacks provide selling opportunities. Any further up move needs to overcome resistances from 17010-17212.

The technical indicators have come out of oversold conditions, but are bearish. The MACD is below its signal line in negative territory. The ROC has crossed above its 10 week MA, but remains negative. The RSI and Slow Stochastic have come out from their oversold zones. Keep in mind that two of the technical indicators the RSI and Slow Stochastic both have touched lower bottoms as the Sensex touched a higher bottom. The negative divergences may choke the rally.

On the daily closing charts of Nifty, things are beginning to look bullish. The index has closed above the down trend line, and also above the mark of 5066 which is the 200 DMA. It needs to close above the 200 day EMA backed by strong volumes for at least 3 days. But volumes are dropping off as the index is rising placing a question mark on the sustainability of the rally.

Technical indicators are looking bullish. The MACD is rising above its signal line, but remains in negative territory. ROC is positive and above its 10 day MA. The RSI is above its 50% level, but its upward momentum is getting shallow. The Slow stochastic has entered its overbought zone.

Conclusion: The technical chart suggests the next hurdle is the Trend Line resistance at around 5139-5187. Therefore 5139-5187 levels are likely to act as a resistance in the coming weeks. NIFTY would require some big trigger to cross this resistance and move ahead. Market is eying at RBI monetary policy announcement on 18^th June. Though it can be a strong positive trigger if there is any rate cut but as of now it looks quite difficult for Nifty to cross the resistance at 5187 and I expect some reflex reaction when Nifty enters between 5139-5187 levels.