RETAIL RESEARCH 07 Jan 2017

HSL Crystal Ball

A technical forecasting of Nifty for the month of January 2017

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

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Nifty - Daily timeframe:

Observation:
Daily Timeframe: After showing a fine upside breakout of sideways consolidation on Thursday, Nifty was not able to
continue with upside momentum on Friday and slipped into decline.

After opening with slight positive note on Friday, Nifty has slipped into gradual decline for better part of session. The
underlying trend for the day was choppy with negative bias.

A negative candlestick pattern has been formed yesterday, which seems to be a type of dark cloud cover (not a classical
pattern, as todays opening was not much higher as of the close of Thursday). However, this is negative development and it
suggests counter attack of bears from the higher levels.

Normally, a candlestick pattern of dark cloud cover is an impending reversal signal on its formation after the reasonable
upmove. Hence, we need confirmation of follow through weakness in coming sessions to call this as a top reversal.

The pattern of horizontal band (blue parallel horizontal line) is visible and we observe a false upside breakout of the upper
band around 8275 levels (bull trap-also called as bearish up thrust-marked in upper X) recently. Previously, we have also
witnessed a false downside breakout (bear trap-also called as bullish spring-marked in lower X) during later part of Dec-16
and that has eventually impacted with sharp upside bounce.

The previous pattern of false downside breakout (bear trap) of later Dec-16 has been achieved with its potential upside
target of around 8275 levels. Hence, the formation of Fridays bull trap/bearish up thrust action could open up the next
potential downside target of around 7915-7900 levels (down to the lower band) and this could be achieved in the next few
weeks).

The daily 14 period RSI has turned down from the high of 60 levels, which is an upper boundary of bearish high low range
of around 60-30 levels. As per the said range theory, the daily RSI is now expected to slide down to the lower 40 levels or
below. This expected pattern of RSI could mean beginning of weakness in the market ahead.

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Nifty - weekly timeframe:

Observation:
Weekly Timeframe: After showing an excellent upside bounce back during last week, Nifty was able to show follow through
upmove this week, but closed with the minor gains of around 58 points, as per w-o-w basis.

A small body candle pattern has been formed this week with long upper and lower shadow, which is signaling a formation
of rare high wave type candle pattern.

Normally, a formation of such patterns after a reasonable up/down moves are considered as an impending reversal signals,
after the confirmations (few of such upward and downward reversals have been marked in X-weekly chart).

Presently, the market is showing frequent instances of lack of strengths after showing sharp one week upside bounces. This
was mainly due to the strength of ongoing intermediate down trend in the market.

After showing a sharp weakness during mid-part of Dec and upside bounce till last week, the Nifty is now in the process of
exhibiting further sharp weakness from the highs (preparing to show steep declines on the confirmation of bearish pattern
for coming weeks).

Hence, this weeks high wave type candlestick pattern is one step ahead in pointing towards the possibility of weakness in
the market for the next 1-2 weeks. To call this high wave type pattern as a near term top reversal, we need confirmation of
weakness by next week.

Further upmove from here, could encounter with the strong valuation resistance of around 8350 levels (green dashed
horizontal line) as per the concept of change in polarity. We are not expecting any sharp upside bounce back beyond 8350
levels, but any decline from here could be a sharper one.

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Nifty - monthly timeframe:

Nifty Monthly timeframe

Observation:
Nifty as per larger timeframe like monthly has showed smart upside recovery from the lows of 7900 levels during Dec-16
and closed the month lower by just around 39 points, as per m-o-m basis.

A hammer type candle pattern has been formed during Dec-16, which is suggesting a temporary halt in downside
momentum, which has started from Nov month.

Normally a hammer type candlestick patterns after the reasonable declines are indicative of reversal signals. But the
formation of this pattern at the beginning of a sharp weakness from the top of 8968 levels Sept-16, is suggesting that the
upside potential of this hammer pattern could be less.

Nifty as per monthly timeframe is signaling that a current halt in downside momentum could be temporary and the recent
swing low of around 7893 levels could be considered as a new lower bottom formation of the larger negative sequence of
LT&LB.

The process of higher top could shift into larger band movement with the upside recovery from 7900 levels (as it happened
in past (during May-July 2016-marked in X), rather than any sharp upside rally.

This means we expect that the underlying trend of Nifty could be in larger sideways range. The maximum upside could be
around 8300-8350 levels and downside potential could be around 7850-7900 levels for the next couple of months. Hence,
formation of this larger sideways range in Nifty could eventually result in beginning of next leg of sharp weakness.

Monthly 14 period RSI has been moving in a bullish high low range of 70-40 levels and the last upside bounce back from the
lower 40 levels (Feb-16) was lacking strength (compared to previous rise). Hence, there is a high possibility that the
monthly RSI could eventually slide down to the lower 40 levels again, from the current reading of 54. This could be
achieved over the next 4-6 months.

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Nifty - quarterly timeframe:

Nifty Quarterly timeframe

Nifty as per deep larger timeframe like quarterly has closed with negative note during Oct-Dec 16 quarter by losing around
426 points, as per q-o-q basis.

A negative candlestick pattern of bearish engulfing has been formed during last quarter which is now suggesting that the
swing high of 8968 levels (of previous quarter) could be considered as an important intermediate top reversal pattern for
Nifty, as compared to previous top of 9119-Jan-March-15 quarter.

The multi-year primary trend line support (orange up trend line, which was connected from the major bottom of 920 (Apr-
June 2003 quarter) has been broken on the downside during last quarter around 8300 levels and Nifty closed below it, as
per the close of Oct-Dec quarter.

This could be considered as a downside breakout of larger intermediate up trend during last quarter and this pattern could
have further sharp negative impact on the market over the next 1-2 quarters.

The important multi-year support of 20q EMA (green curvy line-which has acted as a crucial intermediate support band for
Nifty in many occasions over the last five years) is placed now around 7350 levels (further decline in Nifty in next quarter
could lead to further slight sloping down in this moving avg).

Hence, the important support-final bottoming out process in Nifty could be seen around 7100-7300 levels over the next
couple of quarters.

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Month gone by Nifty daily timeframe

Nifty started the month of Dec-16 (indicative of orange vertical line) with the sharp negative note and the weakness of this
early part Dec was arrested soon and led to upside bounce back.

The formation of swing high of around 8275 during mid-part of Dec has led to yet another near term top reversal pattern
and Nifty witnessed sharp declines from the highs.

The sharp weakness has finally halted at the key lower levels support of around 7900 levels with the formation of false
downside breakout during later part of Dec.

The sharp upside bounce back ensued again from 7900 levels during end of month & year and Nifty finally closed the
month of Dec with minor upside recovery mode, at 8185 levels.

Hence, the overall movement of Nifty for the month of Dec was more of a larger band with the formation of important
swing highs and lows.

SUMMING UP: FORECASTING FOR COMING MONTHS & QUARTERS:

The underlying trend of Nifty as per daily and weekly timeframe is larger range bound and the overall chart pattern is
suggesting a possibility of resumption of sharp weakness from the upper range, which could eventually retest the low of
7900 levels.

The pattern of larger timeframe like monthly and quarterly are indicting a progression of an intermediate weakness that
has started after the formation of important top of 8968 levels of Sept 16.

The upside potential from here is limited (maximum up to 8350-8400 levels) and the downside possibility is high. Nifty
could eventually reach the downside of around 7100-7300 levels over the next two quarters.

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