Equity indices: The Nifty has fallen below 5825 which was being seen as a critical level. This development opens the way for the Nifty to decline further to about 5200 levels. The medium term momentum remains weak and it is reflecting in the trend. Given the present technical conditions, we expect the Nifty to reach 5200. The Mid Cap index (8215) seems to be in a much weaker condition and stronger declines could be witnessed in this index. 7900 could offer some support but we do not expect the support to sustain. Further downsides look possible.

Commodities: Aluminium appears to be the weakest amongst metals. Copper and Zinc can also mirror Aluminium and may head lower in the coming weeks. Gold and Silver have broken down and may head lower this week. Crude has begun to slip. Weakness can accelerate below $89.

Currencies: The upmove in the USD/INR could lose steam closer to 46.00 level. It is a wait & watch situation for now. Euro Dollar can target higher levels of 1.36 in the coming weeks. The USD/JPY has recovered and can target 83.50. The DXY slipped below $79 which can see it test $78 or lower.

Index Watch

Nifty making a trend channel: The Nifty has made a trend channel since October 2009. The trend has now fallen back into the channel. Technically, this is a very negative development. The lower trend line of the channel is indicating a price target of about 5225 – 5200 for this trend.

Medium / long term momentum indicates 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 in a very weak position. The momentum supports further weakness. The trendchannel suggests a target of 5225 – 5200. Other analytical methods relating to short term trends (not drawn here) too suggest similar conditions. Going by the present technical conditions, we expect the Nifty to decline and the level of 5225 looks reachable.

Falling below its trendchannel: The index has fallen below the support line of its trendchannel. It has also fallen below 8400 which was earlier seen as a support. Technically, this signals weakness and suggests further downsides to the index.

Negative divergence in momentum: We have used 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 has lost momentum and has turned weak. The trend is developing in line with this condition.

Outlook: The Midcap has turned weak as we had expected. We expect this weakness to be sustainable and should result in further downsides to the index. Meaningful medium term support could emerge around 7900. However, the overall trend is likely to stay weak over the medium term.

Sector Watch

CNX Defty: As per our expectations, the weakness in the medium term momentum has worked in the trend and the last three weeks has seen Defty come down strongly. We expect this trend to sustain as indicators continue to be weak and the index can decline to 4000 in the near future. We remain bearish on the index.

BSE PSU: The medium term momentum in the PSU has turned weak. While there may be short tem consolidation. We see the index declining further.

BSE Bankex: The medium term trend continues to suggest weakness. However a short term consolidation can occur. A break below 11900 could see the index decline further.

BSE IT: IT index appears strong amongst sectoral indices. While the immediate trend remains bullish, medium term momentum is beginning to show negative divergence. A move below 6350 can cause damage to the trend.

BSE Cap Goods: BSE Cap Goods has declined sharply for the last few sessions. Medium term is weak and suggest that the index can decline further. Technicals indicate a target of 10600 in the medium term.

BSE Auto: The BSE Auto index has declined in the last three weaks. It is currently trading in a technically negative territory. Technical indicators suggest further weakness ahead with targets of 8950.

Commodities

Aluminium: Aluminium prices weakened last week. Prices may come to levels closer to $2350 and $2300. Resistance on the upside is at $2470 and $2520.

Zinc: Zinc prices also broke down in line with other metals. Below $2350, Zinc can see lower levels closer to 2200 levels.

Copper: Copper has received a hit during this week. Weakness will emerge below $9300 which can see it come closer to $9000 level.

Gold: Gold has breached the level of $1350 last week. This can result in further downsides till $1300. Upside resistance to watch out now is $1360 & $1400.

Silver: A price move below $28.00 has weakened the trend in Silver too. Further weakness is anticipated and it can possibly see support closer to $26.00.

Crude oil: Crude oil largely moved sideways with a negative bias. Further weakness may emerge in it below $88 level which can see it come closer to $86.

Currencies

Dollar/Rupee: The USD/INR moved sideways with a positive bias during the last week. However, there is a hint of sluggishness that is creeping into the uptrend. A sustained rise may result if 45.70 level is breached beyond which it can reach 46.10. Support will come at 45.30 and 44.50.

Euro/Dollar: Euro/Dollar, after the last week’s movement, is in a short term uptrend which can see testing 1.36 levels or further. Support on the downside will come at 1.3425 and 1.3350.

Dollar/Yen: The USD/JPY made a recovery towards the later part of the week. A sustained move above 82.50 level can see it reach 83.50 and 84.00 level. Support on the downside is expected at 82.75 and 82.00.

Dollar Index - DXY: The DXY took a U turn near its 200 DMA last week. Since the level of $79 has been breached, it can now witness levels of $78 and lower. Reversal of this downtrend can only be confirmed above the level of $79.75.

Global Equities

S & P 500: S&P500 continues to make new 52 week highs however, its upside momentum may be losing a bit of steam. A decisive move below 1260 may lead to weakness which can see it test 1230 and 1200 level.

BOVESPA: The Bovespa market slipped last week. We see support at 69000 on the downside. The overall trend lacks direction and can trade two ways in a range.

Shanghai SE Composite: SSE declined on expected lines last week before recovering from the low of 2683. The immediate uptrend will become stronger if SSE manages to break 2850 in the coming week. Support is expected to come around 2650 levels.

Hang Seng: The HSI continued with its upside momentum as per our expectation. Having nearly conquered 24500, this Index now looks to scale 25000. A reversal of trend can occur only below 23500.

Nikkei: The Nikkei declined strongly during the week. The uptrend seems to have lost momentum and can correct. It is a wait & watch for a while with a negative bias.

FTSE: The FTSE uptrend may have reversed below 5900. Weakness is likely to continue this week which can see it test 5800 or lower.

MSCI - EMI: The EMI remained flat in the last week. The short term trend seems to be losing momentum. Weakness will emerge below a break of 1130 below which it can see 1110 level.