RETAIL RESEARCH 02 June 2018

MARCH-2020

Nagaraj Shetti
nagarajs.shetti@hdfcsec.com
Nifty Daily Timeframe: Panic selling on the back of weak global cues. Nearing a crucial lower supports

Observation:
After showing a decent upside recovery from the lows on Thursday, the Nifty witnessed a heavy
sell off on Friday on the back of weak global cues (mainly due to a fast spreading of Corona virus
outside China) and the Nifty tanked by 430 points in a day.

The Nifty opened Friday on a sharp downside gap of 251 points, shifted into a weakness for the
better part of the session. Minor intraday upside recovery was seen, but the market slipped again
towards the later part and closed near the lows.

A long negative candle was formed on Friday with unfilled opening downside gap. Technically such
pattern indicates a panic selling in the market.

Normally, such market action at the lows could indicate a key bottom reversal in the underlying
(such pattern has happened on 1st Feb-on Union Budget day). But, still there is no sign of any
bottom formation as of now.

The next support is placed around 11,100-10,900 (green horizontal line-previous larger
consolidation of Aug-Sept 2019). But, the question of sustainability is still not known.

Daily 14 period RSI is placed at the oversold region of 24. Previously, the low of RSI at 23 was
followed by a larger consolidation movement and later upmove in the Nifty during Aug-Sept 2019.

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Nifty Weekly Timeframe: Sharp negative reversal. Is formation of another higher bottom on cards…?

Observation:
After showing a consolidation type of movement in the last couple of weeks, the Nifty witnessed
a steep decline in this week and closed the week lower by 7.28%, as per w-o-w basis.

A historical long bear candle was formed in this week (within a high low range of 837 points), which
indicates a sharp downward reversal in the market.

We observe a larger degree of higher tops and bottoms, which is in force since Jan 2017. The
present down leg from an all-time high of 12430 (20th Jan) seems to be sharper one, compared to
previous down moves from a higher top.

This formation will continue as long as Nifty stays above 10637. However on shorter term frame
lower top and lower bottom formation is visible since the top of 12430 in January 2020.

This indication suggests a possibility of another higher bottom formation at the lows (around
11000-10900), followed by formation of another lower top on the upside bounce.

Weekly 14 period RSI is placed at the crucial lower bullish range of 40 (bullish 80-40 range). But,
the RSI was seen forming a larger degree of lower highs around 75-65 (since Aug 18). This pattern
indicates a possibility of yet another reasonable upside bounce from near the low of 37-35 levels.

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Nifty Monthly Timeframe: Formation of another higher bottom is expected around 11K mark

Observation:
The resumption of weakness in the month of Jan 2020 has got intensified in the month of Feb and
the market has witnessed a deep cut of around 6.36% in Feb 20, as per m-o-m basis.

We observe a formation of long bear candle on the monthly chart, which indicates a sharp down
trend from the highs. Similar type of steep weakness as per monthly chart was formed in the
previous two occasions (Sept 2018 and July 2019).

The larger positive sequence of higher tops and higher bottoms continued as per monthly chart.
Present decline could be in line with the formation of new higher bottom at the lows. The
confirmation of higher bottom reversal is required.

Nifty is nearing an important cluster support around 11000 levels (support as per change polarity-
pink line and trend line support connecting previous higher low-brown uptrend line).

Though, Nifty is in a larger degree of higher highs and lows over the last two years, present slope
of upside is narrowing (means the margin of the last two higher tops is very small at 12103 and
12430). This indicates a stiff resistance around the new highs and this could eventually result in a
formation of new lower top over the period of time.

The repeated negative divergence in Nifty/RSI is intact at the highs. Hence, another uptick in the
monthly RSI is expected from a current reading of 51.5 levels or from the lows. Marked in X.

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 Global Market Snapshot: Broad based weakness in the global markets. Any upside rally could be a sell on rise

Dow Jones (US)-Monthly Timeframe NASDAQ (US)-Monthly Timeframe

CAC (France)-Monthly Timeframe DAX (Germany)-Monthly Timeframe

UK FTSE (England)-Monthly Timeframe SHANGHAI COMPOSITE (China)-Monthly Timeframe

NIKKEI (Japan)-Monthly Timeframe HANGSENG (Hong Kong)-Monthly Timeframe

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Observation:
The detailed study of global market indicates a broader negative outlook of world markets and its
impact on the Indian market.

DOWJONES: The US market has witnessed a sharp weakness in this month and moved below the
crucial support of intermediate trend line at 26000 levels. Hence, any pull back rally could be a sell
on rise opportunity here.

NASDAQ: This US IT major index has witnessed a crucial top reversal pattern at 9838. But, the
index is placed at the important cluster support of 8150-8400 (uptrend line and horizontal line).

CAC (France): The France index has witnessed a sharp decline in this month and closed below the
intermediate trend line support of 5435. Hence any upmove from here could be short lived.

DAX (Germany): The long term view of this European market is negative. We observe an important
top reversal pattern at 13795 in Feb month. Hence, a reasonable pullback rally is expected from
the lows in coming month.

UK FTSE (England): We observe a sharp downside breakout of the larger consolidation pattern at
6900 levels. The decline below the intermediate/long term uptrend line at 7150 could mean a
possibility of more weakness, post pullback rally.

SHANGHAI COMPOSITE (China): The Chinese market has witnessed a sharp downside breakout
during early part of this month (after a long market holiday due to an outbreak of Corona Virus in
the country).

After the resumption, the Chinese market has showed a significant upside bounce from the lows
and filled the major gap at 2955. Currently facing selling pressure from near the said gap area.

NIKKEI (Japan): The Japanese Index seems to have formed an important triple top formation
around 24450 (orange dashed line).

Having placed at the lower support of intermediate uptrend line, one may expect upside bounce
in the index in coming weeks, which could be a sell on rise opportunity for the coming months.

HANG SENG (Hong Kong): This Asian index has been moving in a larger triangle pattern over the
last few years (brown converging trend lines).

Having declined sharply from the upper triangle area around 28500 in Jan 20, the index has
witnessed a sell on rise in this month. Hence, minor upside is expected initially, but one may expect
a sharp sell on rise opportunity in the coming months.

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 MONTH GONE BY: The overall month of February 2020 was a sharp down trending month with sell on rise

The Nifty started the month of Feb 2020 with sharp down trend (on the day Union Budget 2020),
and the decline of that event was short lived.

A smart upside bounce has occurred from the lows of 11614 and the uptrend continued till the
mid part of February month.

The weakness got triggered again around 12100-200 levels on the fear of outbreak of Corona Virus
and the strength of upside bounce was decreasing.

Sharp trended decline has resumed during later part and that got intensified towards the end of
the month. The overall month of February was a sharp down trending month with sell on rise.

LAST MONTH’S PREDICTION v/s MARKET ACTION

LAST MONTH’S PREDICTION: In our last report (Crystal Ball-February 2020) we have mentioned
about the all-time high of Jan at 12430 to be an important top reversal and this high is unlikely to
be taken out for the next 2-3 months.

We have expected the upside bounce to be a sell on rise opportunity and given a downside target
for the Nifty of around 11000 (for the next 3 months).

We had anticipated a sharp decline in the broad market indices like MIDCAP and SMALLCAP by
around 8-10% in the next few months.

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 MARKET ACTION: The Nifty has proved that the recent all-time high of 12430 (20th Jan) as an
important top reversal pattern as of now, with a sharp decline from the highs.

The Nifty witnessed a sharp upside bounce post union budget (beyond our anticipated levels), but
the formation of lower high at 12246 (14th Feb) has also proved to be an excellent sell on rise
opportunity in the Feb month.

The Nifty has almost reached our mentioned downside target of 11K mark (so far made a low of
11,175 in a month).

As anticipated in the report, a sharp decline has occurred in the Mid Cap and Small Cap segments
till now. Around 5.6% decline in the Mid Cap and 6.71% decline in the Small Cap has happened
after the release of last report).

TECHNICAL FORECASTING FOR COMING MONTHS

The near term trend of Nifty is down and some more weakness is likely, though a reversal is
nearby. Being placed at the oversold region/near the next crucial support, there is a possibility of
a reasonable upside bounce in the market from lows of around 11,000-10,900 by the next 1-2
weeks.

The formation/confirmation of bottom reversal at the mentioned lows could open up a decent
upside bounce from the lows and that is likely to pull Nifty towards higher 11550-600 levels in
the next few weeks.

The long term charts like monthly, indications of momentum oscillators, Dow’s theory and the
overall chart patterns of global market are all indicates that any pull back rally could be a sell on
rise opportunity for the next month.

The next multi-month downside target for the Nifty is around 10500-400 (after a pullback rally),
which could be achieved in the next 2-3 months.

The ultimate/long term downside target for the Nifty could be around 9400-9500 levels in the
next 6-9 months. (Such intermediate downward corrections have unfolded in 2010 and 2015 and
resulted in a 25% or more decline from a top, in around 12 months).

Strategy: The long positions (index/stocks) for a minor upside targets to be maintained during
pullback rallies. One may create a positional sell positions on the rise (during lower top reversal).
More importantly, Portfolio Review needs to be done during crucial market turnarounds.

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Disclosure:
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