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Prospect of a gap down open looms large, the Nifty can open around 4950 if international cues are any indication. The Dow fell by nearly 350 points from its previous close; at one point, during the mid-session, it was down close to 1000 points, its biggest intraday fall since the crash of 1987. Asian markets are reeling under the weight of the big fall in the Dow which fell fearing the sovereign debt crisis in Europe deepening.

The SGX May Nifty is trading at 4950 as we write this Market Outlook. This level is below the level of 4957 where the 200-day simple moving average of the Nifty is situated. It remains to be seen if the Nifty goes below 4957 and stays there; if it does it has a major ramifications for our market. The next key level then would be the 200-day EMA level of 4879 once that is decisively breached things would turn quite panicky. However, this would be the first test of the 200-day moving averages since April 2009 in this major uptrend that began early March 2009; thus, there is a likelihood that there could be a short covering rally again anytime today or shortly from a level close to these moving averages. However, we should keep in mind that it generally happens but whether this really happens this time remains to be seen. We would, anyway, be very vigilant.

Life beyond 4950 would be quite tough for the bulls except for the hope of a short covering rally. Earlier this was the level we were expecting as the worst case scenario; now, we need to seriously observe if there is that anticipated rally the Nifty manages to get past the 89-day moving averages located anywhere between 5115 and 5130. Unless that happens we have trouble ahead and this bull market could be in serious danger.

Rajat K. Bose