The short term trend in the Nifty has begun moving up and this can lead to some upside. However, medium term technicals have already begun indicating bullish fatigue. This creates a very peculiar situation, where the short term trend is up, but the medium term momentum is turning weak. We are very cautious about the present upmove and its sustainability. The level of 6050 is seen as a support and a break below that would weaken the trend again. The Midcap index too is showing technical weakness over its medium term charts.

Commodities: Zinc and Copper have advanced over the week. However, Aluminium has again turned sideways. The trend is up for metals but with interludes of sideways movements. Gold is range bound but Silver could advance. Crude has begun to slip and will be seen as weak below $89.

Currencies: The USD/INR has gained a bias to weakness as expected. A decline to 44.50 looks possible. The level of 1.30 offers support for the Euro. But it has begun to rise and can advance to about 1.35. The USD/JPY has slipped below 82 and has the potential to decline to 80.50. The DXY has gone below 79.75 and this can cause a further decline.

Nifty making a trend channel: The Nifty has made a trendchannel since October 2009. The trend broke out from the channel and almost fulfilled its measuring implication, but has now fallen back to the channel. This can be a pull back movement. The upper level of this chanel is indicated at 6450.

Medium / long term momentum is indicating negative divergence: The medium / long term momentum indicator (MACD) is showing a divergence in its chart. The price chart has made two higher tops (8/1/10 & 5/11/10), but the corresponding levels in the MACD are making lower tops. This is indicating bullish fatigue in the chart and suggests that a phase of weakness could be developing in the trend.

Outlook: The medium term charts of the Nifty are no more in a position of bullish strength. Given the technicals, weakness has set in and can lead to a correction over the medium term. The Nifty has moved above its short term resistance at 6100, so the short term bias is positive. A close below 6000 would be seen as weakness. We prefer to be very cautious about the present upmove.

Bouncing off its trendchannel: The index has hit the support line of its trendchannel and is currently bouncing off this trend line. This can lead to some advance in the index over the short term.

Negative divergence in momentum: We have used an MACD indicator to gauge the momentum. It is seen that while the index chart has made higher tops, the corresponding tops in the momentum has registered lower tops. This is indicating that the medium term trend is losing momentum and has begun to turn weak.

Outlook: The Midcap can make a short term rally, but its medium term momentum is suggesting that weakness has begun to creep into the trend. We expect a short bounce here but the possibility of a sustained uptrend is very bleak at present. A range bound movement can happen in the index. Its overall structure has weaknened.