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)

RETAIL RESEARCH P age |1

RETAIL RESEARCH Nifty [CMP-8349.35] RETAIL RESEARCH P age |2 .

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. 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. (See page no 5)  There are three healthy things supporting the bulls and suggesting us we are in downward retracement before the next rise. As we discussed earlier index has started to correct towards the 61. Then the 2nd corrective has started from 8336. [Index moved up without any significant correction. The dynamic “wave iii/C” started from 5118 and ended at 9119 with a couple of extensions. In this “wave a” has started from 8336 to 7714.8% retracement levels of 8100 levels. this is a classic example of gap theory.  In case if index slides with three wave decline and is slow in nature. And now index is in progress of cycle degree “wave iv/X” down. Second is Faster upward retracement has been witnessed in the last rise. 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.]  We have to observe the current fall closely. And now we are in progress of “wave x” which has started from 6825 level. 2017 around 8293 to 8332 and we are near to that level. 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. there is a gap witnessed on Jan 11. If “Island Reversal” is formed then all bullish expectations could cancel out and we could directly fall toward 7650 or lower. 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.  After a long struggle bulls gave up from the resistance of 8460 and provided a 0-b trendline breakdown which is a clear reversal.  Index exactly turned from the gap resistance of 8460 levels.  As per our preferred wave count: Decline from the high of 9119 to 7940 is marked as major “wave a” .  Most important thing to note.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). First is Index has formed a higher top formation on weekly chart which is beginning of bullish continuation structure. 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. if index closes below this level then we could see little deeper correction towards 8100 levels. This a-b-c is 1st corrective and the rise from 7539 to 8336 is marked as “wave x”.  Overall traders can maintain negative bias as long as index trades below 8460 levels for the target of 8100. the pattern could get validated on a fall below 8340 levels. the index is in downward retracement fall before the next rise towards 8550 (our third target) and higher levels in forthcoming weeks. Third is if we are in internals of major “wave B” then index has to retrace above 61.2% projection level of “wave i/A & wave ii/B”. Further wave details discussed in next page. There is strong support placed at 8340. The “wave x” is a rising wedge pattern. so if bulls give up then we could see sharp decline before the next rise. This fall could halt below 8100 and will not move below 7893 before testing 8550. RETAIL RESEARCH P age |3 . (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. RETAIL RESEARCH Observations: [Earlier Indications are in Italics & All levels are in Nifty Spot/Cash]  Week’s action formed a shooting star candle at the resistance zone which is a bearish reversal formation. As per our preferred count Cycle degree “wave iii/C” has ended at 238. At this point we are maintaining bearish stance till 8100 and will observe the fall’s price structure & steepness.

internals are a-b-c.e.  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”. RETAIL RESEARCH Nifty – Internals  The daily chart of Nifty shows internal count structure.  If it is “wave b of B” then fall will be slow in nature and could halt around 8100 levels. RETAIL RESEARCH P age |4 .  Now the current fall from 8461 could be “wave b of B” or “wave Y”.  In addition if we are in major “wave B” then index has to spend more time in this leg (i. 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.

2016 has stopped  The above chart shows the chance for island reversal formation on daily chart. provides support or resistance in witnessed band. 2017. island reversal on Nov 11.  There is gap witnessed in the band of 8293 to 8322 on Jan 11. if index  Gap is a simple and power full technique in technical analysis.  So if we observe the same in above said band. RETAIL RESEARCH P age |5 . Gaps are always provides any down gap in this zone then it is island reversal. RETAIL RESEARCH Nifty – GAP Resistance Nifty – Chance for Island Reversal  The above chart shows that the gap witnessed on Nov 11. then target could be 7893 which is starting point of the island formation leg’s swing low. 2016 post that index tanked from 8460 to 7916 in 6 days. the bulls to move further. recently we have spotted  The same has exactly happened in the current scenario.  Island reversals are very strong reversal formation.

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