CHARTWATCHERS

Technical Analysis of Market Trends

November 2014

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Email:edelinvest.technical@edelcap.com

ChartWatchers
Chart Watchers: Market poised for a year-end rally
We anticipated resumption in upside momentum above 8160 level, as the Nifty index
reversed from the recent lows of 7723 (hit on 17th Oct, 2014) and has not looked back
since then. The recent rally has also been supported by positive global cues, as all
major global equity indices have rallied sharply in last one month. Post hitting an alltime high in late October, the Nifty has notched three consecutive weekly gains The
stage is now set for a Year-End rally, as seasonal analysis suggests that Indian stock
indices have closed on a strong note in 9 out of 10 times over the past decade with an
average gain of 3.4%.

Edel Invest Technical

EdelInvest Technical
+91-22-4088 6140
Edelinvet.technical@edelweissfin.com

Niftys monthly chart has formed a bullish outside bar for October after a DOJI
candlestick in September. This is a bullish signal post an indecisive candle. Nifty is
currently in a strong intermediate uptrend with six consecutive positive monthly closes.
With a positive bias for December, we expect Nifty to continue its bullish move going
forward, making 2014 the best year since 2009.
Introduction of a spate of reforms, especially deregulation of diesel prices has helped
in reduction of oil subsidy burden. Reforms in the coal sector by scrapping state
monopoly and increasing the excise duty on diesel & petrol to contain budget deficit
will also provide a boost to Indian economy going forward.
An uptick in the Index of Industrial Production (IIP) in September, and a sharp drop in
CPI and WPI numbers for October (due to fall in food and fuel prices) and a favorable
base affect will force the RBI to advance its interest rate cuts next year.
Crude oil has fallen sharply in the past six months. With seven consecutive weeks of
negative finish, crude oil has registered its largest decline since the fall in 2008. This
decline in crude will be favorable for the Indian economy and the impact of the same is
expected to be seen over the next few months. Every USD drop in crude reduces Indias
oil import bill by INR 8500 cr. This will also improve our CAD.
The entire upmove over the last one month has shown a strong momentum. Every
correction post the major breakout above 6350 has been slower versus the resumption
of fresh ascent that implies a strong uptrend. With accelerated momentum post its new
all-time high, the Nifty looks poised to show further gains to be aided by the impending
Year-End rally. Considering the above factors, we maintain our bullish bias on the
Nifty and expect it to move higher for a target of 8800.

Page 2

Global central
bankers easy
money policies
continue to cheer
markets. India to
benefit from
incentive-based
reforms

Raining Global Liquidity and Domestic Reforms

The ongoing surge in global capital flows and the gradually changing policy environment in India
has changed the outlook for the Indian economy. The Government has continued to bring
reforms and kick off initiatives to insulate India from any global shocks. After the labor reforms,
the GOI took steps to free the Indian economy from the burden of fuel subsidy by deregulating
diesel and formalizing a new price formula for natural gas. The move eased the fuel subsidy
burden significantly. Among the various incentives, the Government and the World Bank signed
an agreement of US$200mn to improve skills of Micro, Small and Medium Scale Enterprises to
overcome constraints like difficulties in accessing markets and finance, poor infrastructure,
difficulties for MSMEs to access technology and skills. The other various reforms include
scraping the state monopoly in the coal industry, breaking the WTO deadlock with food security
deal and increasing the excise duty on diesel & petrol to contain budget deficit. While these
reforms announced will not be immediately reflected in GDP but they will definitely put the
economy on a strong footing going forward.
The other important development seen over the past month has been the fall in commodity
prices across world markets. Weakness in the Chinese economy, coupled with a protracted
slowdown in the Eurozone pounded prices of ferrous and non-ferrous metals. Apart from this,
higher supplies and the strengthening of USD amplified the fall in crude oil for the second month
in a row with Brent trading below $80 a barrel and the WTI at $76 a barrel. This will not only
contain Indias oil import bills but will also keep the INR stable despite USD index surging to a
five-year high.
The US Federal Reserve last month ended QE3, but the world markets continue to receive tons
of money due to loose monetary policies of European Central Bank (ECB) and the Bank of Japan
(BOJ). Last week, the BOJ stunned world markets by surprisingly announcing expansion of fresh
dose of monetary stimulus. The BOJ plans to expand its monetary base by 80 trillion yen a year,
mainly by stepping up purchases of longer-term Japanese government bonds. The recent actions
by the ECB, BOJ and BOE have propelled equity markets.
With major central banks committed to reviving economic activity by keeping interest rates at
record low for considerable period of time, the Indian stock market should continue to remain in
an uptrend.

Page 3

India continues its winning streak

NIFTY is the best

performing
market compared
to global peers on
YoY basis

India outperforms global peers

The global equity markets continue their up-move, registering strong performance in the last one month.
The leader being Japans Nikkei, which was up 17% followed by Nasdaq and Dow Jones (which were up by
8-10% each). India continues to rise at a steady pace, with the local stock indices gaining over 6%. The
major laggard has been Russia, which is down by 7%.
Nifty has continued to show stellar performance for the past one year, topping the global equity indices
chart in terms of outperformance. Since the beginning of Oct 2013, the Nifty has posted gains of 37%. We
expect that the positive environment created by change in Central Govt and reform measures will
continue to attract overseas capital flows and it will continue to outperform global peers.

Page 4

CRB Index likely to reverse from key support zone

The expansion in
the inverse
correlated chart is
now likely to
contract as both
USD and CRB are
at crucial supply
and demand levels

A rising USD is non-inflationary hence commodities usually have an inverse relationship with USD.
Whenever the US Dollar Index strengthens, prices of commodities typically drop. The same can be seen
from the chart above. The blue line signifies US Dollar index whereas the green line represents the CRB
Index. As the USD moved higher, commodities have moved lower and vice versa.
Currently, the US dollar index is very close to forming another major top whereas the CRB Index is at its
crucial support zone. Once it does, it could bring a relief rally in crude oil, gold and the rest of the
commodity index from their extended corrections.
Thus, we believe that the CRB index could see short-term reversal from the current levels and may rally 78%, bringing a spike in commodity prices before the year ends or by early 2015.

Page 5

Copper looks like a value buy

Ratio of Comex
Copper vs US
30-year bond
yield is now at
long term
support zone

Copper prices have fallen steadily since the beginning of 2014. What is notable is the correction in copper
price vis-a-vis US-30 year bonds which has taken copper to most oversold levels since 2010. This has
happened at a time when global economy is seeing a cyclical slowdown emanating from developed
markets.
This ratio (HG Copper / US-30 Year T Bond Futures) has been moving in the band of 2.0 to 2.6 since the
beginning of 2012. With US yields having already seen a reversal, time appears ripe for copper to lead an
economic recovery. The cyclical strength in commodity prices can lead copper related stocks higher.
Copper has received support from impending strike in Perus Antamina mine, and Freeports Mt Grasberg
mine next month. Unionised workers at Antamina in Peru will strike indefinitely from Nov. 10 to seek a
bonus payment, which would remove around 30,000 tonnes of material from the market if it is forced to
close. And workers at PT Freeport Indonesias Grasberg mine will down tools for a month from Nov. 6 to
Dec. 6 in protest against stiff working conditions after a fatal accident there last month. Estimates suggest
that these two labour disruptions could remove 84,000 tonnes of mined copper through the end of 2014.
Meanwhile, Chinas demand for power lines and copper used in household goods remains strong, leaving
some to forecast a price rally in the latter part of 2015. LME week brought speculation that the Chinese
SRB has once again begun buying copper. We believe the SRB is likely to buy this quarter more than the
200,000-300,000 tonnes purchased in March-April. London-based hedge fund Red Kite Group currently
holds more than half of LME copper inventories. LME data shows there is a dominant holder of
copper stocks, accounting for between 50-80% of total metal holdings. That would be worth ~US$534854mn based on prices of US$6,675 per tonne. If one firm owns most of that spare supply, it can charge
higher prices to buyers. There is no reason for anyone to be holding 70% of the stocks of copper.
The Hang Seng Index is a best proxy to metal prices in the absence of any local drivers. In the last few
sessions the Hang Seng has moved up significantly on strong volumes. This clearly indicates a move in
domestic metal stocks where negative newsflow has already led to a series of underperforming months.

Page 6

Metal stocks may explode in December rally

CNX Metal index
may bring the
much needed
beta in the
December rally

Above is the seasonality table for CNX Metal Index. Average return for 10 years for this index is
~7.5%, which is also the highest amongst all months.

Its time to buy metals

Seasonality analysis for last 10 years suggests December as best month for Metal index
Historically, Metal Index has been negative for only 2 years in last 10 years (2004-2013)
10-year average percentage change for this index is ~7.5% which is also the highest
amongst all months
Based on above hypothesis, we believe that the Metals Index can be a leader and will
outperform the broader market in December 2014.

Page 7

Copper

Buy Copper
between 410415 levels with
a Stop Loss of
395 and target
of 440 / 450

The MCX Copper price is witnessing consolidation in the range of INR 408-418 after falling from INR 439
levels. Looking at the weekly chart, the price is taking support at the three- year rising trendline at INR
400. The trendline is formed connecting the low of INR 332.35 and INR 366.35. The falling trendline is also
visible on charts connecting the high of INR 462.95 and the low of INR 428.85, which converges at the
same support level of rising trendline (NIR 400). The bottleneck bollinger band is indicating resumption of
an up move.

Nickel

Buy Nickel in 940950 range with a

Stop Loss of 883
and target of 1040

The MCX Nickel nosedived from the 2014 highs of INR 1280 to INR 900, a fall of ~30%. The bullish reversal
bat harmonic pattern is visible on the weekly chart. The formation began from the low of INR 830 in the
first week of May 2014, which is marked as point X in the chart. The formation was completed at the low
of INR 899 in the October expiry and showed some strong reversal signal. The reversal was strongly
backed by the support on RSI, which tested the 30 level and bounced back. We suggest buying MCX Nickel
on the dips to INR 950 for the target of INR 1040 with the Stop Loss of INR 883.
Page 8

Gold

Gold may see

short-term
rebound

The price pattern formed in Comex Gold over the past one year is a bullish butterfly pattern. Prices have
reversed from the PRZ (price reversal zone) of the above pattern along with oversold RSI levels. It is also
above its crucial resistance level of US$1180-1183 from where it has given a breakdown recently. If
prices sustain above US$1180 then it may see short-term rebound to test US$1240 / 1250 levels over the
next few weeks. This will be supportive to our view of a bullish upmove in the CRB Index.

Brent Crude

Crude oil
continues to drift
lower

The weekly chart of Brent Crude Oil shows that prices are in a downtrend, indicated by lower tops and
lower bottoms. It is also trading in a downward sloping channel. In the medium term, lower band of the
channel is likely to lend support ~US$75 levels. However, a positive divergence is seen in the daily chart at
oversold RSI levels and the market may see a short-term bounce to test the resistance. Since, the major
trend remains bearish below US$89, we recommend to go short only on rise towards US$83-84, placing
stop loss above US$88 for the target of US$75.

Page 9

Rebound in IIP and drop in Inflation to boost markets

Drop in
inflation
numbers
provide hopes
for earlierthananticipated
rate cut from
RBI

IIP for Sept showed an uptick, coming at 2.5% after two months of sub-1% growth. The strongerthanexpected IIP print was majorly due to robust growth in Capital Goods (11.6%). Consumer Durables
continued to show weakness. However, IIP (ex Radio, TV & Communication) shows expansion of 4.9%
YoY.
CPI for Oct surprised positively, falling to 5.52% the lowest level seen since the new CPI series started.
Although a part of it is attributed to high base, it reaffirms our belief that inflation is on the downward
trajectory. Food inflation has eased (5.8%) due to government making judicious MSP hikes and taking
measures to curb supply side constraints. WPI also fell to 1.77%, lowest level in five years. Record low WPI
and CPI levels will lead to more discretionary spending by consumers. We expect this disinflationary trend
to continue going forward, aided by falling crude oil and lower global food prices. There may be some
dovish statements in the RBI policy meet which in December and a possible rate cut in the February
meeting if this CPI trend continues.

CAD has reached comfortable levels due to fall in gold imports & rising exports. The number for the
quarter ending June was (-) US$7.8nn, much lower than (-) US$22bn in the same quarter last year. Crude
oil has fallen below US$80 per barrel, which will support CAD further. Every US$1 fall in crude oil reduces
the oil import bill by ~INR 8500 cr. India imports 75% of its annual crude oil requirement. Hence, falling
global crude will keep CAD contained.
Page 10

US 10-year Bond reversed from its crucial support zone

Bond yields
bounce from
crucial support
levels

As we anticipated, US 10-year bond yield witnessed a reversal from its support in 1.80-2.0% zone. The
medium-term MACD indicator is also at its crucial support of zero. The medium-term trend is still bearish.
However, we eexpect the yields to now stay above 2% and going forward may head higher to 2.50-2.65%
levels.

India 10-year Bond yields are now at crucial support levels

India 10-year bond yeild is now trading below its 200-week moving average. The short-term and the
medium-term trends are down. The crucial support level is placed in the range of 8.0-8.20% levels. We
expect bond yields to stabalize near these level and stay in the range of 8-8.40% for next few weeks.

Page 11

Nifty

Strong
uptrend in
progress

With its impressive move in the last one year, Nifty continues to rally into record territory. After breaking
multiple resistances around 6,350 levels, the index has not looked back - gaining more than 30% since
Feb 2014. Another interesting observation to be seen is that Nifty has not fallen more than 6% from any
of its swing high post the breakout above 6350. This implies that every minor dip in the index is being
bought by stronger group of bullish traders. Looking at the current momentum and positive bias on back
of Year-End rally, we expect Nifty to continue its bullish move for target of 8,800.

BANK NIFTY

Upside
momentum to
continue

The Bank Nifty has outperformed Nifty in the recent rally. Since May 2014, the Bank Nifty has gained 36%
versus a 25% move in the Nifty. The Bank Nifty on weekly charts broke out of the ascending triangle above
13,400 in May 2014 and showed an exciting performance. According to the triangle, the target is 18,700
(height of the triangle), which we expect to achieve soon.

Page 12

NIFTY Seasonality Study

Nifty has ended

on
a
strong
positive note 9
out of 10 times in
December

Nifty seasonality analysis indicates that December has been the most favorable month for the bulls, as the
index has ended on a positive note 9 out of 10 times in last 10 years. The average returns generated in the
December rally has been in excess of 3%. Hence, we expect that the next few weeks will be positive for
the Indian stock market and the Year-End bullish sentiment will push Nifty higher.

FII & DII Flows

FIIs have been

net buyers
throughout
the November
series till now

Page 13

Nikkei 225 Index Long term breakout

Nikkei showing
major long
term breakout

NIKKEI is trading at its seven-year high after showing a robust upmove in the last three years. Since 2012,
the index has risen by more than 100%. The breakout of 14 years ascending triangle is visible on index at
16,000. We expect the bullish phase to continue and expect a rise of 4-5% by mid-Dec. 2014.

Shanghai Composite Change of long term trend

Shanghai breaking
out of its threeyear consolidation
range

The Shanghai Stock Exchange Composite Index has broken above the five-year falling channel breakout
and is trading at three-year high - moving out of rectangle formation on weekly charts. The Index has
moved above 2,500 for the first time after Nov. 2011, making the high of 2,508 as the end of
consolidation. The index is trading above the multiple guppy averages illustrating the bullish trend. Going
forward, we expect strong outperformance by the index and expect it to move towards 2800 in the
medium term.

Page 14

Dow Jones Industrial Average Sharp reversal from support zone

Dow Jones
continues to
move in the
direction of its
primary trend.

Dow Jones Industrial Average (DJIA) is in a strong bullish trend and trading at life time high around
17,700. The bullish rising channel is visible on charts connecting the lows of 10,404 and 12,471 and the
highs of 13,288 and 15,542. Recently it fell to test the channel and bounced sharply forming the bullish
candlestick reversal formation hammer in the second week of October 2014. We expect it to rise to
18,200-18300 in the recent bullish move.

USD INR Consolidation continues

USDINR continues
to move in a narrow
consolidation range

USDINR continues to trade in a narrow range of 60-62 from last few months. With change in policy
environment following BJPs win in LS election and the consequent flurry of reforms, the volatility in the
rupee has narrowed. The price chart is showing strong resistance near 62 levels. We expect prices to
continue moving in the narrow range and any attempt of rise near 62 levels will see selling pressure and
prices may fall towards 60 levels in the medium term.

Page 15

Indian Sector Watch

Sector
outperformers
Reality, Capital
Goods, Media and
Banking
Sector
underperformers
Oil & Gas, Metals
and IT

The Reality Index has seen strong shortcovering rally in the last one month; thanks to the recovery in DLF,
which itself is up by 35% from the recent lows. Capital Goods, Banking and Media have been clear
outperformers in last one month, gaining 10-12% whereas Oil & Gas, Metals and IT sectors have been the
laggards.

Percentage of stocks above 50 DMA and 200 DMA in various sectors

The above chart shows underlying strength of the current bull market, as more than 70% of the
stocks in major sectors are above their 50 DMA and more than 85% of the overall markets are
above 200 DMA.
Page 16

Open Interest Structure

Nifty OI Structure
70
60
50
40
30
20
10

Calls Open. Int.

8700

8600

8500

8400

8300

8200

8100

8000

7900

0
7800

x 100000

Options OI
structure suggests
range of 83008500 for Nov
series. However,
bias is bullish
which is indicated
by continues
writing in put
options

Puts Open. Int.

Nifty Open Interest data indicates range of 8300-8500. Interestingly, base for the market (as indicated
by maximum OI in put option) has been continuously shifting upward, which is a good sign for the
Indian market.

Stock IVs

Page 17

Stocks to trade with a positional view

Tata Steel Buy

Buy in the range

470-480 for the
target of 550 with
the stop loss of
445

Tata Steel is moving in a long term rising channel formation. Prices have underperformed the overall
market from the last five months, as prices have seen corrective moves from the highs made in June 2014
till date. The stock has now taken support on the 200 DMA and is now showing signs of reversal. The
medium term MACD is also in buy mode. We expect the prices may see strong rally in the short term if it
sustains above 445. We recommend buy at current levels for a target of 550.

Siemens Buy

Buy in the
range of 915925 with a
Stop Loss of
854 for the
target of 1040

Siemens Ltd is in the bullish trend forming higher top higher bottom formation with the
support of rising trendline. The price had taken the support of rising trendline at the low of 769
last month and rose sharply. The breakout of falling channel is also visible on weekly chart at
881. Traders can buy in the range of 915-930 for a target of 1040 with Stop Loss of 854.

Page 18

Asian Paints - Buy

Buy in the range

of 670-680 levels
with a Stop Loss
placed below 634
levels for target of
750

Asian Paints stock price is trending bullish forming higher top higher bottom formation. After making
the new life time high of 680.95, the prices were seen consolidating in the symmetrical triangle formation,
but hard to hold. It broke out of the triangle last week at 668 and settled at 672.20 with the volumes
above 53 lakhs shares after 2011. This confirms the breakout which can take prices to mark the new life
time high and we expect the target of 740 on the stock.

Jubiliant Foodworks - Buy

Buy in the range of

1455-1470 with a
Stop Loss placed
below 1385 for
target of 1625
levels

Jubilant Foods stock price displayed an astonishing move of 14% in the week ending 14th Nov. 2014
closing at 1,466.10. The move was expeditious when price moved out of the symmetrical triangle
formation at 1330. The price now had broken above the two years horizontal channel or rectangle
formation, indicating the bullish move to continue. On weekly charts, the averages on MACD had given
positive crossover, indicating the bullish move to continue. We expect price target of 1600 in short term.

Page 19

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina,

Mumbai 400 098. Board: (91-22) 40094606,

Nitin Jain

Head Business
Capital Markets (Individual Clients Group)

nitin.jain@edelweissfin.com

+91 (22) 4063 5447

Vinay Khattar

Head Research
Capital Markets (Individual Clients Group)

vinay.khattar@edelweissfin.com

+91 (22) 4063 5447

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