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RETAIL RESEARCH 03 Dec 2016

HSL Crystal Ball


A technical forecasting of Nifty for the month of December 2016

Nagaraj Shetti
nagarajs.shetti@hdfcsec.com
Tel-022-30750021

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Nifty Daily timeframe:

Observation:
Daily Timeframe: After showing a negative candlestick pattern of dark cloud cover on Thursday, Nifty slipped into sharp
decline on Friday and closed the day lower by around 106 points.

Nifty opened Friday with negative note and slipped into further decline during early part of session. The smart upside
recovery of afternoon brought some hopes for bulls to make a comeback, but Nifty was not able to sustain the recovery
and shifted again into steep weakness towards the end.

We observe a formation of opening downside gap today, which remains unfilled. Previously, Nifty has formed few such
unfilled opening downside gaps in past, which were all associated with the lower top reversal patterns (marked in X).

Hence, the negative candlestick pattern of Thursday (dark cloud cover) and the sharp decline of Friday (formation of long
range bear candle) are all pointing towards the formation of short term top reversal pattern in Nifty around 8250 levels
(swing high of 1st Dec).

The negative sequence of lower tops and bottoms as per larger degree is intact and it once again coming into scene now.
The recent swing high of 8250 levels could now be considered as a formation of new lower top of this sequence. Hence,
present decline is expected to slip below the recent bottom of 7916 levels (21st Nov) in coming weeks.

Daily momentum oscillator like 14 period RSI has turned down and is now placed at the edge of the key support of 40
levels. The overall momentum set up is now indicating a possibility of RSI breaking below 40 levels again, which could mean
further strengthening of downside momentum in the market.

Another possibility of daily RSI is opening up here; which is a formation of larger positive divergence pattern in Nifty/RSI.
This means Nifty has a possibility of forming lower lows (compared to its recent bottom of 7916 levels) and the daily RSI
could sustain above its recent low (compared to the recent low of 22 levels of 21st Nov).

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Nifty weekly timeframe:

Observation:
Weekly Timeframe: After the formation of important reversal pattern of hammer of last week, Nifty shifted into smart
upside bounce back during early to mid-part of this week, but was not able to sustain the gains towards the end.

A small body candle has been formed this week with long upper shadow, which is echoing an emergence of steep selling
interest from the higher levels.

Immediately after the formation of hammer pattern of last week, the formation of this long legged doji type candle pattern
is also pointing towards the lack of strength of bulls to sustain the gains/bounce back.

Normally, a formation of doji pattern after a small upmove could be considered as a warning signal for bulls for resurgence
of sharp weakness ahead.

Present weekly chart pattern is showing unusual strength of downside momentum (indicative of formation of long range
bear candles on the declines) and the display of lack of strength during upmoves (formation of weak candles on the way
up).

The present set up is suggesting a dominance of bears which normally participate after the completion of broader uptrend
or after an important top reversal pattern. Hence, this setup is also hinting at the possibility of continuation of bears
domination in the market in coming weeks.

Weekly 14 period RSI is now placed at the important lower levels of 40, which is also lower bullish range (bullish range-70-
40 levels).

If the weekly RSI slips below 40 levels and sustains as per weekly closing basis, then such action could mean increasing
strength of downside momentum in the market as per smaller as well as larger timeframe.

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Nifty monthly timeframe:

Nifty Monthly timeframe CHART 1

Nifty Monthly timeframe CHART-2

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Observation:
Nifty as per larger timeframe like monthly has witnessed a sharp weakness in the month of Nov, before showing lower
levels recovery during later part of last month. This month saw follow-through weakness in the market till now.

As per chart-1, we observe an unfolding of larger upward sloping triangle pattern (green converging trend lines) and the
Nifty is now sliding down towards the lower end of this triangle pattern. Currently the lower end of this triangle is placed
around 7500 levels in the next 1-2 months.

According to chart-1, the 60 month EMA (pink curvy line) has been offering strong supports for the market since 2012
onwards and leading to a formation of bottom reversal patterns of larger down trends around these EMA supports. Hence
the present support of this moving average is placed around 7200 levels (levels could vary slightly in coming months).

The important top reversal patterns (marked in X- chart-1) as per monthly timeframes have been unfolded into larger
declines as per negative structure of lower highs and lower lows and they have all consumed more than 10 months.

Having declined from the top of 8968-Sept 16, Nifty has all the possibility of shifting again into the said negative sequence
of lower highs and lower lows and this could consume a time period of another 3-5 months from here.

The theory of Bollinger band as per chart-2 is suggesting that the Nifty is now placed around mid Bollinger band at 8100
levels. On the moving/sustaining below this support, Nifty has the possibility of reaching down to the lower Bollinger band
as per the theory of Bollinger band. The lower band is now placed around 7300 levels.

The monthly 14 period RSI was not able to sustain above 60 levels during Sept and declined sharply in the last few months.
As per the pattern and range theory of this momentum oscillator, the monthly RSI is expected to slide down to the key
lower levels of 40 (from the current reading of 51).

This expected pattern of monthly RSI could mean continuation of downside momentum and sustained weakness in the
market for the next few months.

Month gone by Nifty daily timeframe:

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Nifty started the month of November with sharp weakness (blue vertical line) and the decline continued for next few
sessions of early part of Nov month.

Minor attempt to show upside bounce back was made, but Nifty was not able to sustain the upside bounce and witnessed
high drama of sharp selloff and steep recovery on the event of macro-economic news on 9th Nov.

The blood bath continued in the market for the next few sessions after the event during mid of November and Nifty formed
a bottom around 7916 levels on 21st Nov.

The decent upside bounce back from the above mentioned bottom has occurred in the market and Nifty closed the Nov
month near upper end of the recent upside bounce back, around 8235 levels.

Summing Up - Forecasting for coming months:


Nifty as per all the timeframe is in a weak set up and more weakness is likely to come ahead. As per smaller timeframe,
Nifty is expected to reach down or just break below the recent bottom of around 7900 levels in the next couple of weeks
and yet another upside bounce back is likely to occur from the expected lows.

Nifty could shift into negative structure as per larger timeframe like monthly and the ultimate bottom formation of this
multi month down trend could possibly end around 7400-7300 levels in the next 3-5 months.

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