Nifty: Buy on declines

Nifty closed flat for the week as Friday's fall erased all the weekly gains. Weekly trading pattern suggests selling at higher levels and possibility of further downside. Despite short term weakness, there is strong support at lower levels and medium term trend comes bearish only on a close below 5750. Main cause for concern is the low GDP growth and falling rupee. Depreciating rupee will dissuade FII inflows too. Government's recent reform measures could take time to yield results. Considering the growth in EPS, any steep fall would provide an opportunity to buy medium / long term. One more risk factor for the current year is the political environment due to pre-election season. While short term trend has been fluctuating quite frequently in May, bullish medium and long term trend is intact and would get disturbed only if Nifty closes below 5750.

Hence, investors with medium and long term outlook can buy on decline while short term traders may sell on rise for the week (with 6075 as stop loss) as further fall appears likely. Further, macro fundamental such as depreciating rupee and the political outlook in view of Lok Sabha elections and FII outlook on our market would determine the future course of action. Matter of comfort at the current scenario is falling commodity prices including crude and gold and the possibility of lower Current Account Deficit. However, if rupee depreciates further and political situation gets murkier with third front in the race for government, a steep fall over medium / long term too cannot be ruled out. However, presently short term trend is down (stop loss 6075), medium and long term trend is up (stop loss 5700) for Nifty and the investors / traders should devise their strategies keeping the above levels in mind. Investors may follow SIP route in respect of quality stocks or "value investing" principle with higher margin of safety and traders should be ever vigilant tracking short term movements. For the coming week, Nifty spot is expected to face resistance at 6065, 6140, 6220 and find support at 5905, 5830, 5755.Nifty, presently in bearish, would get out of short term bearishness only on a close above 6075. Advice for Traders Last week's trading pattern suggests selling at higher levels. Hence sell on rise may be adopted for the week with Friday's high level as stop loss. Further, weekly open level is very important for the entire week. Short positions may be avoided as long as it maintains / closes above weekly open and vice versa.