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HDFC Securities: A technical forecast of Nifty - January '17

HDFC Sec | 09 Jan, 2017  | Follow Author | Add to my Favourites 
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- 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.

Summing Up - Forecasting for coming months

- 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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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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