Nifty weekly update 28 May-1 June – 2012

Nifty is taking its time whether to extend the rebound or to go to further lower levels. As mentioned in the previous posts above 4950-4960 levels it could extend its bounce to another 90-100 points which should be considered as just an extension of a bounce back. Let’s have a detailed look into the components which can have an impact on the further moves in Nifty.If we consider the world economic situation it is really awaiting a recession or I would say it would be the second part of what we have seen in 2008. The rising dollar would be a real concern for all economies and India too would not be seen as decoupled a decoupled economy from this risk. This time the situation looks a little different for Nifty. Nifty was falling, crude was falling and dollar was rising and unfortunately the equity index could not make use of the falling crude because of the rising dollar. Thus when the crude starts rising nifty cannot go up in the same pace as the rate hike cycle can start again with the inflation rising again in the country. Have a look into the chart of Dow, it has made a bearish island around 13400 and would struggle to move up in the coming sessions. As an alternate hypothesis if it moves up and crosses 13400 -500 levels on the upside it can just be considered as an extension of the up move and not a fresh one. At this juncture Dollar index would give the first indication of equity markets bottoming out because I expect it is in the last leg of the up move. If we take the case of Dollar / Inr it is quite different as it is following Dollar index, thus if dollar index makes a reversal dollar/inr would follow. Now let’s have a look into the volume data, it shows a lower turnover data for the past 2-3 months and this shows the lack of interest from the market participants due to the policy paralysis in India. The selling in the equity market does not show any portfolio unwinding and that’s why I would like to stick to 4500 than any other lower levels.  Remember all the major bull markets happen when the pessimism at its peak and if there is no major selling happening it seems to be some kind of value buying happening at lower levels. It is surprising to see a petrol rate hike when the crude is cooling off from its high and I wonder how would they react when the crude shoots ups again. If the measure was to arrest the rising dollar they would get it wrong this time too as this would lead to major problems in the domestic front.

Nifty medium term outlook – As of now everybody is expecting a bounce back above 4950 which would be a 3^rd wave breakout in the short term, (for a chartist 3^rd wave usually gives a dream run).If we could see the chart we could see a well respected downward slopping trend line. The trend line shows levels of 5100 levels as the major resistance and if a short term bottom is in place Fibonacci number shows 5300. These are the levels one might get trapped on the upside as people start saying a bottom is in place and the market is undervalued, we could hear people saying about 7000 levels and from these levels nifty could most probably slip to 4500 levels. Read the market volume during this course of time and see what the smart money is actually doing in the market. In a new trend always look for three sectors Auto, metals and banking. Auto sector would probably give the first reversal, metals would trigger the move on upside or downside and banking would lead the index on any major move. Now it is a wait and watch game for us to see how nifty is going to react to the news flow in the market.