Equity indices: We have been mentioning here that the Nifty has opened the potential to reach 5200 after it crossed below 5825. The last few sessons have been very dramatic for the trend and it appears that the Nifty is well on its way to our expected target.

Technical conditions remain very weak and conducive to declines. We expect the trend to deteriorate further and the target of 5200 looks reachable. The midcap index (7880 ) too looks very weak. It has already crossed below our initial target of 7900 as expected. We expect this index to decline further and it may even reach 7300. Our bias to the downside continues.

Global Outlook
Commodities: Metals are in a weak trend and the weakness may persist in the coming week. Zinc appears to be the weakest and may see lower levels. Copper is trading sideways wth a negative bias. Aluminium will gain strength only above $2445. Gold and Silver may continue with its weakness in the coming week. Crude has begun to slip and can drift down to $82 too.

Currencies: The upmove in the USD/INR is still in force; however, it could lose steam closer to 46.10 level. Euro Dollar could see weakness emerging around 1.3800 level. The USD/JPY is in an uptrend and can target 84.00 level. DXY continues to be weak and strength may appear only above $79.00.

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 was a very negative development and the negativity is playing out very well. The lower trend line of the channel is indicating a price target of about 5225 – 5200 for this trend.

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 suggests that a phase of sustainable weakness is developing in the trend.

Outlook: The medium term charts of the Nifty remain in a very weak position. The momentum continues to support further weakness. The trend channel suggests a target of 5225 – 5200. Going by the present technical conditions, we expect the Nifty to decline from these levels and the level of 5225 looks reachable.

Falling below its trendchannel: The fall in the index has accelerated below the support line of its trendchannel. It has also fallen below 7900 which was earlier seen as a support. Technically, this 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. It has also crossed below our expected level of 7900. Technicals suggest further downside to the trend. The nearest support is now seen around 7300. 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. The index will continue with its decline in the coming week.

BSE Bankex: Banking index may continue with its weakness in the coming
week. Technical support exists at around 11800 level. But we expect this
support to be broken.

BSE IT: IT index appears strongest amongst sectoral indices. Strong
support exists at around 6400 levels and only a decisive move below it
can open up new downsides.

BSE Cap Goods: BSE Cap Goods had declined in line with other sectoral
indices. Medium term technicals are weak and suggest that the index can
decline further. Technicals indicate a target of 12400 in the medium
term.

BSE Auto: The BSE Auto index has declined in the last few weeks. It is
currently trading weak and technical indicators suggest further weakness
ahead with targets of 8500.