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21 Jan 2017

RETAIL RESEARCH
Weekly Technical Report

Weekly Technical Report


A chart speaks one thousand words

Tough times for the Bulls

Technical Research Analyst: Gajendra Prabu


E-Mail: (gajendra.prabu@hdfcsec.com)

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Nifty [CMP-8349.35]

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Observations: [Earlier Indications are in Italics & All levels are in Nifty Spot/Cash]

Weeks action formed a shooting star candle at the resistance zone which is a bearish reversal formation; the pattern could get validated on a fall below 8340 levels.

After a long struggle bulls gave up from the resistance of 8460 and provided a 0-b trendline breakdown which is a clear reversal. As we discussed earlier index has
started to correct towards the 61.8% retracement levels of 8100 levels. [Index moved up without any significant correction; so if bulls give up then we could see sharp
decline before the next rise. There is strong support placed at 8340, if index closes below this level then we could see little deeper correction towards 8100 levels.]

We have to observe the current fall closely, if this fall is a five wave decline and sharp in nature then we could see deeper down side in the index towards 7893 and
7650 levels.

In case if index slides with three wave decline and is slow in nature, the index is in downward retracement fall before the next rise towards 8550 (our third target) and
higher levels in forthcoming weeks. This fall could halt below 8100 and will not move below 7893 before testing 8550. At this point we are maintaining bearish stance
till 8100 and will observe the falls price structure & steepness.

Index exactly turned from the gap resistance of 8460 levels; this is a classic example of gap theory. (See page no 5). In addition to this bulls are stopped at the 50%
retracement level of last major falling leg started from 8968 to 7893.

Most important thing to note, there is a gap witnessed on Jan 11, 2017 around 8293 to 8332 and we are near to that level. If index opens with gap down in this zone in
coming days and does not cover the gap for next 2 days then it could validate a Island Reversal pattern which is a strong reversal formation and has the down side
target of 7893. If Island Reversal is formed then all bullish expectations could cancel out and we could directly fall toward 7650 or lower. (See page no 5)

There are three healthy things supporting the bulls and suggesting us we are in downward retracement before the next rise. First is Index has formed a higher top
formation on weekly chart which is beginning of bullish continuation structure. Second is Faster upward retracement has been witnessed in the last rise. Third is if we
are in internals of major wave B then index has to retrace above 61.8% level of last major falling leg started from 8968 to 7893 as this fall was three wave decline
(assuming flat pattern in big picture). Further wave details discussed in next page.

Overall traders can maintain negative bias as long as index trades below 8460 levels for the target of 8100. Once index reaches this target maintain neutral bias for
some time and we will confirm whether we are in retracement fall or fresh falling leg.

As per our preferred wave count: Decline from the high of 9119 to 7940 is marked as major wave a .The three wave upward rise from 7940 to 8655 is marked as
major wave b and the major wave c has started from 8655 ended at 7539. This a-b-c is 1st corrective and the rise from 7539 to 8336 is marked as wave x. Then
the 2nd corrective has started from 8336. In this wave a has started from 8336 to 7714. The rise from 7714 to 7979 is wave b. The last falling leg wave c has
started from 7979 ended at 6825 with minor wave i & iv overlap. And now we are in progress of wave x which has started from 6825 level. The wave x is a rising
wedge pattern. As per our preferred count Cycle degree wave iii/C has ended at 238.2% projection level of wave i/A & wave ii/B. The cycle degree wave i/A
started from 4531 level and ended at 6229 and wave ii/B started from 6229 and ended at 5118. The dynamic wave iii/C started from 5118 and ended at 9119 with
a couple of extensions. And now index is in progress of cycle degree wave iv/X down.

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Nifty Internals

The daily chart of Nifty shows internal


count structure.

From the low of 7893 to 8461 index


has formed a zigzag pattern which is
a three wave pattern marked as
wave a of B or wave X. internals
are a-b-c.

Now the current fall from 8461 could


be wave b of B or wave Y.

If it is wave b of B then fall will be


slow in nature and could halt around
8100 levels.

In addition if we are in major wave


B then index has to spend more time
in this leg (i.e. above 7893) at least
another 25 days because major
wave A has taken 74 days; so 60%
is 45 days and so far index spent 19
days in this leg.

If it is wave X then the fall will be


sharp in nature and we will be sliding
directly towards 7650 and lower.

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Nifty GAP Resistance Nifty Chance for Island Reversal

The above chart shows that the gap witnessed on Nov 11, 2016 has stopped The above chart shows the chance for island reversal formation on daily chart.
the bulls to move further.
There is gap witnessed in the band of 8293 to 8322 on Jan 11, 2017, if index
Gap is a simple and power full technique in technical analysis; Gaps are always provides any down gap in this zone then it is island reversal.
provides support or resistance in witnessed band.
Island reversals are very strong reversal formation, recently we have spotted
The same has exactly happened in the current scenario. island reversal on Nov 11, 2016 post that index tanked from 8460 to 7916 in 6
days.

So if we observe the same in above said band, then target could be 7893 which
is starting point of the island formation legs swing low.

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