BEING bullish can be seriously dangerous for your financial health now. Over the past

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few weeks, every time the bulls have made an attempt to come back, they have been beaten to death by the bears. If overwhelming domestic troubles and issues caused the Indian market to decline in the initial part of 2011, global worries continued to drag it down in the second half of the year so far.

On the domestic front, inflation remains stubbornly high, and after the recent petrol price increase, there is a high probability that we are going to see a fresh spike in the price index over the next few weeks. What has added to the worries is the decline in the rupee against the US dollar. The sharp decline in the domestic currency has been one of the major factors affecting the market negatively. During the week before the last, there were tremors in the currency market, but last week we were almost in a panic situation. It is very likely that the rupee might get hammered further in case of any further trouble in the international financial market, which would only increase selling pressure in equities as overseas funds would try to protect themselves from any unnecessary loss in portfolio valuations.

So, it would be worthwhile for traders to keep an eye on the currency market for the first signs of revival, while any further trouble for the domestic currency may cause a sharp decline in equities.

For all those who may have forgotten the unexpected revival of the stock market in March 2009, it was currency funds, which bought Indian equities in a big way as the rupee had lost too much within a very short period. This time too, the first contrarian trades are going to emerge from these funds.

In news flow from global markets, it has been getting worse with every passing week. For all those who were expecting the US Federal Reserve to announce another bailout package, there was disappointment. But what has been more damaging for equity markets was the acknowledgement by the Fed that the recovery of the US economy has slowed down and the downturn could last longer.

While numbers are going to give a clearer picture on this, our assessment is that by making this statement, the Fed only added to the fear that has been dogging corporate America for sometime.

It is because of this fear that US companies have stopped spending on expansion or on recruitment and are sitting on huge cash piles instead.

While worries over the US slowdown and recovery are going to continue for a couple of quar ters, what is going to create more trouble and anxiety in both equity and currency markets is what happens to Greece, and subsequently to other weaker European economies. Any sovereign default in the region is going to have a contagion effect and that is going to spell more trouble for the Indian market.

Stocks where the exposure of European institutional investors, both sovereign funds and banks, is high are going to face the heat over the next few sessions as these counters are likely to see some more cash-based selling.

Coming to oscillator charts, the short-term indicators have given a fresh sell signal. The moving average convergence divergence (MACD) is about to give a sell signal, as the average and trigger lines are converging with each other just below the equilibrium line. On weekly charts, this indicator continues to be in sell mode, as it has moved southward into the equilibrium territory.

The 14-day relative strength index (RSI) is now placed in sell mode, as it has once again moved southward in the equilibrium territory. Also, there is a bearish indication on these charts as an advance breakout signal has already appeared. On weekly charts, this indicator is in sell mode as it has moved southward. Other short-term indicators are also in sell mode, as they have moved southward from the overbought territory. The big picture on these charts continued to show that the downward sloping trend channel is still in place, and small subchannels are getting formed in those large channels.

Coming to support and resistance levels for Nifty, the index could face resistance at 4,980 in any attempt to move upward, after which 5,050 is another level where it could face some resistance over the next few sessions as traders who are stuck with long positions are going to unwind them. In case Nifty is able to cross these resistance levels, then a short squeeze may take it closer to the 5,180 level, where shortterm averages are going to offer tough resistance to the index.

As far as support levels are concerned, the first support would come at 4,780 after which Nifty may come closer to the downward sloping channel and get support at 4,630, which can work as a strong prop.

As explained above, a strong selling pressure can emerge from European funds, and these funds have high exposure to banking stocks. So it would be worthwhile to keep a close watch on some of the private sector banking heavyweights. In case there is a decline in these stocks, we are likely to see Nifty breach some of its strong support levels, given the fact that IT stocks are not attracting any major buying at this point of time despite the weakness in the rupee.