Weekly Outlook Of Nifty From 4th June - 8th June

Last week I had suggested that nifty is in a bear market and may face strong resistance at 4980 and 5000 levels nevertheless it managed to cross and touch 5011 but it was a failed attempt and got banged on touching the down trend line.

The Q4 GDP data has come at 9 years low and market started to slide. India’s trade deficit is continuously rising, which remains a key concern for market sentiments and new worries are arriving from Europe, Greek and Spain creating panic worldwide. Considering all these aspects our markets will also remain uncertain and may create more panic or remain highly volatile.

Sensex daily chart pattern suggests a typical bear market pattern that formed during May. The index dropped sharply below all three EMAs and the downtrend line. It wasn’t a great surprise that the Sensex pullback terminated exactly at the downtrend line.

The technical indicators have turned bearish once again and seem to suggest that it may fall much lower. The MACD is negative, and about to fall below its signal line. The ROC has entered into negative territory touching its 10 day MA. The RSI has failed to move above its 50% level, and is moving downwards. The Slow stochastic is about to fall below its 50% level. Possibility and breach of 15135 is on cards.

Nifty index made an attempt to pullback towards the downtrend line and faced strong resistance. The higher volumes last week, indicates probability of more selling pressure in the coming week. However, support for NIFTY will be from RBI’s shift into helpful monetary stance. The shift into surplus liquidity and low interest rate regime will attract investments into equities. It is also expected that the Government will act to prevent crisis in the Indian economy. Based on these expectations, immediate weakness near 4500 can attract investors.

The technical indicators are looking bearish. The MACD is falling below its signal line in negative territory. The ROC is negative, and below its 10 week MA. The RSI is dropping below 30 and Slow Stochastic is inside the oversold zone. Technically on chart nifty is on major downtrend and is getting ready for a negative breakout. The test and breach of 4614 remains a possibility.

Conclusion: Sensex and Nifty have witnessed short pullback rallies and are getting ready to test their Dec 2011 lows. Breach of 4757 will create panic selling and can knock down nifty to 4634 and even 4530. The global economic outlook isn’t bright. The strategy is to get invested on immediate weakness near 4624-4550 with a stop below 4500 for eventual test and break of 5000 and 5600 in the short term. The market looks good for investment opportunity providing a 1000 point reward on a risk of less than 100 points. A break and close below 4500 nifty will surrender to bears; keeping in mind Vix closing above 200 DMA will be a big time trouble for bulls so remain strict on your investments.