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Weekly Technical Report December 16, 2013

Indices Last Close

% chg over

previous week

Short-term view (up to 1 week) Comments (stocks in line with short term view)

BSE Sensex 20,716 -1.34 Mildly bearish. NSE Nifty 6,168 -1.47 Mildly bearish. BSE Midcap 6,302 -1.36 Mildly bearish. BSE Smallcap 6,131 -1.53 Mildly bearish. BSE 500 7,573 -1.59 Mildly bearish. BSE Auto 12,034 -2.14 Mildly bearish. BSE Bankex 12,970 -2.95 Mildly bearish. BSE Capital Goods 9,852 -4.15 Mildly bearish. BSE Consumer Durables 5,622 -3.22 Neutral. BSE FMCG 6,401 0.30 Neutral. BSE Health care 9,411 -1.05 Neutral. Short Divi’s lab BSE IT 8,557 1.62 Sideways. BSE Metals 9,621 -1.01 Mildly bearish. BSE Oil and Gas 8,564 -1.94 Mildly bearish. Short HPCL BSE Power 1,628 -4.57 Mildly bearish. BSE PSU 5,703 -4.34 Mildly bearish. BSE Realty 1,340 -1.90 Sideways BSE Teck 4,802 0.82 Mildly bearish.

Summary

As can be seen from the chart above, the Sensex had formed a ‘Western Gap Down’ pattern on the daily charts between 20,901 and 20,867 which had resulted in to a bearish ‘Island Reversal’ pattern on the daily charts. And now here onwards all the rules of price and time will be applied to this gap also. The Sensex made an intraday low at 20,693 and finally closed near the low of the day at 20,716 which is very near to previous intermediate low of 20,674 and in first half hour if the Sensex violates this low, much more downside will be witnessed which is explained in this report below For the last 5 consecutive sessions the Sensex is forming ‘Lower Lows’ as well as ‘Lower Highs’ on the daily charts which is a bearish sign. We were so far assuming that the Sensex is in wave ‘E’ of the ‘Diametric Formation’ and if the current fall does not stop then we will begin wave ‘F’ from the all time high of 21,484 and in ‘Diametric Formation’ wave ‘F’ retraces wave ‘E’ . As wave ‘E’ was exactly 61.8% of wave ‘C’, technically we can end wave ‘E’ at the all time high of 21,484 which is given in this report below. There can be 2 ways of the confirmation to conclude that wave ‘F’ has begun and they are as follows:-

1. The Nifty closes below 6,143 which is 61.8% of the wave ‘D’ 2. We have drawn b-d line on the chart above which is currently trading at 6,090 level. Once this line is breached

violently we will lock wave ‘E’ at 21,484 and from there on conclude that wave ‘F’ had begun. Once the wave ‘F’ is over upward wave ‘G will unfold in the upward direction. And that will complete the entire ‘Diametric Formation’ There is concept called ‘Overlap’ in Neowave analysis and which states that whenever the ‘Diametric Formation’ is taking place there is a strong tendency to ‘Overlap’ with wave ‘A’ which is marked on the chart below. The top of wave ‘A’ was at 20,740 and the low of the current downfall which is taking place is at 20,693 and thus the concept of ‘Overlap’ is clearly visible on the daily charts. And that gives more evidence to our assumption that the ‘Diametric Formation’ is unfolding for last 73 trading sessions. We have also analysed this ‘Diametric Formation time wise and which is as follows:-

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As can be seen from the table and the chart above out of 5 waves so far 4 waves took Fibonacci time and which enhances the credibility of the assumed structure.

Week Ahead

As can be seen from the chart above the Sensex had formed a ‘Western Gap Down’ pattern on the daily charts which is between 20,901 and 20,867 which had resulted in to a bearish ‘Island Reversal’ pattern on the daily charts. And now here onwards all the rules of price and time will be applied to this gap also. The Sensex made an intraday low at 20,693 and finally closed near the low of the day at 20,716 and which is very near to previous intermediate low of 20,674 and if in first half hour the Sensex violates this low much more downside will be witnessed and which is explained in this report below

Name of the wave

Time taken

Remark

A 15 B 8 Fibonacci+1 C 22 Fibonacci D 13 Fibonacci E 8 Fibonacci

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For last 5 consecutive sessions the Sensex is forming ‘Lower Lows’ as well as ‘Lower Highs’ on the daily charts which is a bearish sign. If the Sensex makes a new low here onwards there are chances that it will be heading towards ‘Record Sessions’ low in coming 3 days which is bearish picture.According to the Japanese candlestick theory Maximum number of record sessions can be 8 to 10 and for it to happen 3 more trading sessions are left. And one thing is very important to notice and that is for last 5 trading sessions the Sensex is forming a black candle on the daily charts which is not a good sign for bulls.

We were so far assuming that the Sensex is in wave ‘E’ of the ‘Diametric Formation’ and if the current fall does not stop then we will begin wave ‘F’ from the all time high of 21,484. In ‘Diametric Formation’ wave ‘F’ retraces wave ‘E’ and as wave ‘E’ was exactly 61.8% of wave ‘C’, technically we can end wave ‘E’ at the all time high of 21,484 which is given in this report below.

There can be 2 ways of the confirmation which can be available that wave ‘F’ had begun and they are as follows:-

1. The Nifty closes below 6,143 which is 61.8% of the wave ‘D’ 2. We have drawn b-d line on the chart above which is currently trading at 6,090 level. Once this line is breached

violently we will lock wave ‘E’ at 21,484 and from there on conclude that wave ‘F’ had begun. 3.

Once the wave ‘F’ is over wave ‘G will unfold in the upward direction. And that will complete the entire ‘Diametric Formation’

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We have marked the 61.8% of the wave ‘C’ on the chart above which was at 21,412 drawn from end of wave” D” and the top made by wave ‘E’ was at 21,484 and 61.8% is a very important Fibonacci ratio in technical analysis.

There is concept called ‘Overlap’ in Neowave analysis which states that whenever the ‘Diametric Formation’ is taking place there is a strong tendency to ‘Overlap’ with wave ‘A’ which is marked on the chart above. The top of wave ‘A’ was at 20,740 and the low of the current downfall which is taking place is at 20,693 and thus the concept of ‘Overlap’ is clearly visible on the daily charts. And that gives more evidence to our assumption that the ‘Diametric Formation’ is unfolding for last 73 trading sessions.

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The assumed wave ‘E’ was from 20,138 to 21,484 and if we take 61.8% of if it comes to 20,655. The Sensex might take temporary support at this level as it is an important level for trading purpose.

We have also analysed this ‘Diametric Formation time wise which is as follows:-

As can be seen from the table and the chart above, out of 5 waves so far, 4 waves took Fibonacci time which enhances the credibility of the assumed structure.

Name of the wave

Time taken

Remark

A 15 B 8 Fibonacci+1 C 22 Fibonacci D 13 Fibonacci E 8 Fibonacci

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Oscillator Current value Average value MACD – 9days 33.52 39.90 RSI – 14 days 49.27 55.90 ROC – 10days -0.20 2.67 As can be seen from the chart and the table above, all the oscillators are cutting their respective averages from above which is a bearish indication.

DKF5 2.76 14.55 DKF8 6.97 33.12 DKF89 80.96 86.30 As we had marked in this report the Nifty is forming ‘Lower Lows’ and Lower Highs’ for last 5 consecutive sessions and that is the technical reason this indicator is in oversold region and so a bounce back is expected any time.

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Week Gone By:

Sectoral Indices

As can be seen from the chart above the BSE Bankex had also formed a bearish ‘Island Reversal’ pattern on the daily charts which is similar to the pattern which is formed in the Sensex, so downside is expected in this sector.

Week Open High Low Close Description Remark Monday 21,417 21,484 21,283 21,326 Black Candle Down Day Tuesday 21,294 21,328 21,175 21,255 Black Candle Down Day Wednesday 21,191 21,216 21,069 21,171 Black Candle Down Day Thursday 21,101 21,104 20,901 20,926 Black Candle Down Day Friday 20,867 20,867 20,693 20,716 Black Candle Down Day

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This index has also formed a ‘Western gap Down’ between 12,299 and 12,246 and it is not filled after 1 trading session and at the same time it had also breached the black upward sloping trend line on the chart. With these 2 technical negative signals this sector looks negative on the daily charts.

This sector had formed a bearish ‘Island Reversal’ pattern on the daily charts which is a bearish signal so it is better opportunity to exit this sector at this juncture.

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Analyst: Adwait Sapre (adwait.sapre@hdfcsec.com)

HDFC Securities Limited, I Think Techno Campus, Building ‘B’, “Alpha”, Office Floor 8, Near Kanjurmarg Station, Opposite Crompton Greaves, Kanjurmarg (East), Mumbai – 400042, Fax: (022) 30753435

Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients