Technical Strategy 2013 December 28, 2012

ICICI Securities Ltd. | Retail Equity Research

December 28, 2012Technical Strategy 2013

Liquidity to script new highs for equities; bull run still a mirage Markets across the globe have rallied since January 2012 after a disastrous showing in 2011, thanks to the wave of funds unleashed by the monetary authorities in US and Europe. Indian equity benchmarks have fared much better than expected in 2012, with a good chunk of the gains coming in spurts, first in January and later from September when the government announced some policy reforms to revive growth and avert a downgrade of India’s credit rating. The Sensex has climbed 26% this year, poised for its biggest annual advance since 2009 as overseas investors have poured in a net US$23 billion this year. A tentatively improving global economic scenario and the sentimental boost post policy action by the government on the much-awaited reforms should foster gains for stock markets going into next year as well. As the markets are gearing up to usher in the new year with renewed zeal and optimism, we take a closer look at the long term price structures to chart the course of Indian equities, going ahead.

Outlook Our long term analysis is guided by the eight year cycle phenomenon followed by the Sensex since its inception (explained in detail on page 7). The index behaviour post the 2008 top appears to be precisely replicating the entire movement post the 1992 top. A striking similarity between these two major peaks falling within the eight year cycle tops is that both were preceded by a multi-fold rally. Based on various technical arguments appended in this report, we expect the Sensex/Nifty to head towards 21000-21500/6300-6460. However, sustainability at these levels is questionable; therefore we recommend that investors consider booking profits at such highs. The next down leg to unfold from thereon could lead indices towards 17500-16800/5250-5050 levels in the later part of 2013/early 2014. However, we believe that such a correction would offer a golden opportunity for long term investors as the next bull run may lead the indices towards new highs by 2015-16. Our preferred picks for 2013 are: Punjab National Bank, Ashok Leyland, NMDC, Bhel, Nestle India, Cipla among large caps and JK Tyre, Tata Global, Pidilite Industries, Aditya Birla Nuvo, TV Today, Sun TV and Mangalam Cement among midcaps (Refer page 11 for details)

Key technical observations • The index approaching the 2008 or 2010 highs or even surpassing the

same by a small margin (2%) in the near future must not be construed as the start of a new bull run based on the observation of market behaviour of re-test and react post the 1992 peak

• The current up move from December 2011 lows, which is 12 months

old, is seen approaching maturity as all directional legs since 2008 have lasted around 13 to 15 months. Based on this attribute, the current rally is expected to conclude towards the first quarter of 2013

• A weakening Indian rupee against the greenback to the extent of 56-57

levels would further instigate a downslide in equities

Exhibit 1: World indices CY12 performance (%)

1Yr%

30

26

22

1613

7 7

10

5

10

15

20

25

30

35

Germ

any

Indi

a

Japa

n

Fran

ce US UK

Braz

il

Chin

a

Source: Bloomberg, ICICIdirect.com Research

Exhibit 2: Major Indices CY12 performance

Indices Current 3M 6M 12M

Sensex 19255.1 3.4 11.4 25.6

Nifty 5855.8 3.4 11.9 27.7

Auto 11304.4 8.8 19.9 39.2

Banking 14150.3 9.1 20.4 56.6

Capital goods 10727.6 -0.4 8.8 35.2

Cons durables 7613.6 10.2 23.2 44.7

FMCG 5920.2 7.9 19.1 47.3

Healthcare 8125.0 8.6 18.8 39.2

IT 5672.6 -4.3 -1.8 -1.5

Metal 10980.3 4.9 2.4 18.8

Oil & gas 8303.6 -3.3 3.6 11.1

Power 1955.8 -3.6 -0.7 9.9

Realty 2067.1 13.2 25.5 52.1

BSE 500 7504.7 4.9 13.1 30.8

BSE midcap 7022.9 6.9 14.9 37.6

BSE small cap 7349.0 5.1 12.7 32.8

Performance in %

Source: BSE, NSE, ICICIdirect.com Research

Analyst Dharmesh Shah [email protected] Nitin Kunte, CMT [email protected] Dipesh Dagha [email protected] Pabitro Mukherjee [email protected]


Outlook for Sensex in 2013 We remain guided by the key technical principles of ‘history repeats itself’ and ‘price discounts everything’ while forming the long term prognosis for the Indian equity benchmarks.

In this context, our long term analysis is guided by the eight year cycle phenomenon followed by the Sensex since its inception (explained in detail on page 7). The index behaviour post the 2008 top, so far, has replicated the corresponding moves post the 1992 peak.

The comparison of these two major peaks (1992 and 2008) is of more relevance because they were accompanied by a multi-fold rally while the 2000 peak was formed within the larger consolidation phase and did not yield multi-fold gains. Therefore, going by the History repeats itself principle, what transpired post the 1992 peak will have a bearing on what is likely to pan out post the 2008 top.

Exhibit 3: Eight year cycle phenomenon Quarterly Chart

Source: Bloomberg, ICICIdirect.com Research, Vivek Patil

We are comparing the portions highlighted in the above quarterly chart of the Sensex (refer exhibit 3).

Sentiments at play: Tendency of re-test and reactions post major eight year cycle tops

The famous quote by Sir John Templeton, “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria”, holds true in any given market scenario. The run-up before a major eight year cycle top is accompanied by extreme market frenzy and a broad sense of euphoria. As the market tops out, a well established uptrend is brought to an abrupt halt and the consequent sharp sell-off leaves a lasting scar on the investor sentiment. It is for this very reason that the ensuing pullback attempts to re-test the major eight year cycle tops are subject to reactions. It is apparent that we are still in the consolidation phase post the 2008 peak and, therefore, it would be important to note the index behaviour within this phase in the previous cycle.


Behaviour post eight year cycle top (1992 & 2008) – First attempt to re-test in 1994/2010 The high of 1992 (4546) was challenged in 1994 as the index marginally surpassed the 1992 high by 2% to register a high of 4643 in 1994. After the re-test of 1992 - eight year cycle top in 1994 - the index went into a tailspin and lost 39% towards early 1996. A similar trend was replicated post the 2008 top as the index nearly re-tested the 2008 high (21206) towards November 2010 (21108) and went into a downward spiral, thereafter, and corrected 28% to record a low of 15135 by December 2011. Behaviour post eight year cycle top (1992 & 2008) – Second attempt to re-test in 1997/2013 After a 39% correction post the first attempt in 1994 the index once again inched closer to the 1994 highs (4643) during August 1997 (4605). However, in the second attempt, the index fell just short of touching the 1994 highs and once again reverted downwards

Current Scenario – Second attempt to re-test in 2013 In the present scenario, the index remains in a well established medium term uptrend and is poised at a 23-month high. The recent sentimental boost provided by policy action from the government’s end on the much-awaited reforms front, coupled with the stimulus announcement from the US Fed, is likely to hold the bulls in good stead going into the next year as well. However, the index approaching the 2010 highs or even surpassing the same by a small margin (2%) in the near future must not be construed as the start of a new bull run. The bottomline remains that we are in the midst of a larger consolidation phase post the 2008 – eight year cycle top whereby it is very much possible that the index re-tests the previous highs. However, the sustainability at such highs is questionable. Whether the index surpasses the 2010 highs or not, there are bound to be overoptimistic noises and a range of extrapolated target levels hurled from some quarters of the market. However, the question arises whether long term investors should get tempted to put their money on the table in anticipation of a new bull run from thereon? The answer is NO. Based on the aforementioned technical set-up, we expect the current up move in Indian equities to attempt a re-test of the 2010 high or even exceed the same by a 2% margin (as has been the case in post 1992 scenario) in the early part of 2013 leading to a rally towards 21000/21500 levels. We further recommend that investors should consider booking profit at such highs as apart from price wise maturity the current rally will also attain time wise maturity in the first quarter of 2013 as discussed ahead in this report. In magnitude terms, the down move post completion of the current up move at around 21000/21500 levels is expected to replicate the earlier down-leg, which was about 20-25% opening downsides towards the 17500-16800 region.


Time wise behaviour post the 2008 top As per our observation of the historical price trends, the velocity of price moves is swift in the direction of the primary trend. In comparison, the secondary price swings tend to consume more time. Post the 2008 top, we have observed that each major down-leg/up-leg for the index has lasted around 13-15 months as evident from the adjoining chart (refer exhibits 4 and 5). The first falling segment from January 2008 to March 2009 lasted 15 months while the corresponding rally from March 2009 to November 2010 consumed 19 months. The next falling segment from November 2010 to December 2011 took 13 months. The current up move from the December 2011 low is already 12 months old while we are still 8% away from completely retracing the previous down leg

Exhibit 5: Sensex Weekly Chart


As evident from the time wise behaviour post the 2008 cycle top, the falling segments have been relatively swift while the corresponding pullbacks have consumed much more time. Thus, the combination of time and price demeanour post the 2008 top indicates a corrective structure. Price wise, the index is replicating the behaviour of retest and reaction of the major tops as was the case post the 1992 peak while the downward legs remain more dominating and pullback rallies carry a sluggish pace and lack an impulsive character. More importantly, the current up move from December 2011 lows, which is 12 months old, is seen approaching maturity as all directional legs since 2008 have lasted around 13-15 months. Based on this attribute, the current rally is expected to conclude towards the first quarter of 2013.

Exhibit 4: Performance post 2008 top

Segment Trend Price RangeJan 08 to Mar 09 15 21208 - 7697

Mar 09 to Nov 10 19 7697 - 21108

Nov 10 to Dec 11 13 21108 - 15135

* Dec 11 onwards 12 till date 15135 - In Progress

* Ongoing upmove

Period in months

Source:,ICICIdirect.com Research


Historical tendency of Sensex topping out in first quarter of every year Further, a closer look at the historical evidence reveals that the Sensex has a tendency to top out in the first quarter of every year. In the adjoining monthly chart (refer exhibit 6) of the Sensex since 2000, we have observed that out of 13 times the index has made a significant top on 11 occasions in the first quarter of every year.

Exhibit 6: Sensex Monthly Chart


Therefore, after apprehending the previous top in the first quarter of 2013, the prospects of a downward leg commencing from there on remains a reality. Hence, it calls for utmost caution to be adhered to at such highs as the corresponding down leg can last around 12-15 months leading up to the middle of 2014. On the flip side, we believe the price wise correction towards 17500-16800 concurring with time wise correction up to middle of 2014 would be the most opportune moment for long term investors to take out the shopping cart and start cherry picking to build a portfolio to ride the next wave up which is expected to last up to 2016, the next potential eight year cycle top.


Key supports for Sensex placed in range of 17500-16800 Structurally, the price rally over the past year can be termed as a cyclical bull market within the larger consolidation post the 2008 top (21206). As detailed in the above paragraphs, we expect the current up move to fizzle out around the first quarter of 2013 post which a cyclical bear trend may unfold, which could last for 12-15 months. Yearly lows (15358) are considered as major long term supports. There are significant price points that have acted as anchor points during the 2012 rally and, therefore, become important technical supports for the Sensex. We have identified such a confluence zone at the 17500-16800 region by employing different price projection methods as detailed below. • The golden Fibonacci ratio of 61.8% of the entire rally from 2012 lows

(15358) to the 2008 highs (21206) is placed around 17592 • The 20% correction from the projected high (21500) works out to

17200 levels • The value of the bullish demand line connecting the lows of the

quarter ending March 2009, March 2012 and June 2012 is placed in the range of 17300-17800 for first two quarters of 2013

Exhibit 7: Sensex quarterly chart



Sensex in retrograde – 8 year cycle phenomenon

We feel it is important to keep in mind the overall long term structure of the index in order to ascertain where we are currently positioned. Leading benchmarks have progressed through some identifiable time cycles and price behaviour since their inception. One such important cycle has been the eight year time cycle since 1984 As shown in exhibit 9, 1984 was the beginning of the eight-year long bull run leading to the first major peak in 1992. The next important peaks occurred exactly eight years thereafter, in 2000 and the latest in 2008. All these peaks are characterised by a correction to the magnitude of over 55% from the peak value.

Exhibit 9: Sensex Quarterly Chart

Source: Bloomberg, ICICIdirect.com Research, Vivek Patil

While the first two turning points (1992 and 2000) coincided with the two biggest stock market scams in Indian financial markets, the third one had the global financial crisis to blame. Another important observation about the market behaviour is that even though the Sensex produced life time high every eight years, only 1992 and 2008 tops were preceded by multi fold and broad based gains while the 2000 peak was led by a frenzy in IT and media stocks alone whereas old economy stocks underperformed during the same period. This leads us to the following conclusions

• Every eight year the Sensex has been forming major peaks followed by corrections of over 55% from peak value

• Each eight year cycle top is not led by multi fold gains whereas every 16 year peak is preceded by multi fold and broad based rallies

• Within this larger eight year cycle phenomenon, the Sensex does witness cyclical bull and bear markets

Exhibit 8: Performance leading up to eight year cycle tops

Period1988 to 1992 390 to 4546 11 times

1998 to 2000 2741 to 6150 1.5 times

2003 to 2008 2904 to 21206 7 times

Price gainMagnitude of

Rally

Source:,ICICIdirect.com Research


The Sensex produced a 11 fold rally during 1984-1992 followed by an 11-year long consolidation including major top during 2000 that saw the index only doubling from the 1998 lows, which is also termed as a bull market. The next multi fold rally took place between 2003 and 2008. Therefore, a study of the price action post the 1992 top becomes extremely relevant to decipher the potential path of the Sensex post the 2008 top. Interestingly, the price behaviour so far post the 2008 top is exactly the same as seen post 1992 as explained in detail earlier. To conclude from the eight year cycle phenomenon, the next major cycle peak is expected in late 2015/early 2016. Therefore, we believe the price wise correction towards 17500-16800 concurring with time wise correction up to mid of 2014 would be the most opportune moment for long term investors to take out the shopping cart and start cherry picking to build a portfolio to ride the next bull market lasting up to 2016, the next potential eight year cycle top.


Sectoral performance 2012: Leaders of previous cycle remained underperformers

For long term investors, one key take away from the aforementioned eight year cycle study is that the stocks/sectors that were the darling of the Street in the run-up to these peaks eventually became gross under performers for many years, thereafter, due to over ownership. Historical evidence supports the aforementioned observation that leading sectors/stocks of the major rallies as per the eight year cycle remain underperformers for many years. Based on same argument during the last edition of Yearly strategy 2012 report we expected the realty pack, ADAG stocks and Reliance Industries to underperform. Now, a look back at the performance of these stocks during 2012 proves the argument to be correct. While the index has recovered its 2011 loss by 80%, many of the names like Reliance Communication, Reliance Power, Reliance Industries, HDIL, Unitech and DLF remained underperformers till August 2012 and even made new lows during the year. Eight year cycle phenomenon

http://content.icicidirect.com/mailimages/TechnicalOutlook2012.pdf

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Inverse correlation between Indian equities and US$-INR

Rising US$ may apply brakes to rally in equities… Exhibit 10: US dollar vs. Sensex weekly comparative line chart since 2006


The rupee did a merry jig in 2012, causing a great deal of difficulty to companies, regulators and investors. It appreciated to 48.6 against the US dollar during the first quarter and then tanked to make a life-time low at 57.3 by June 2012, thereby hitting the projected target as per our 2012 Technical strategy report dated January 5, 2012. Gradually, the mounting inflows of foreign funds and policy reforms by the government helped the rupee to recover to 52-odd levels by October 2012. Exhibit 11: US$ INR (Spot) Monthly candlestick chart (Price projection)


The overall trajectory of the rupee, however, has been downward against the dollar since 2011. The depreciation in the rupee is increasingly being recognised as a concern for the Indian economy. The above chart depicts the inverse correlation between the Sensex and the US dollar. When the rupee depreciates against the US dollar, equities take a beating. Therefore, the progress of the rupee against the greenback is expected to have a bearing on domestic equity trends

Technical Outlook

The US$/INR pair bottomed out around 48 levels in February 2011 coinciding with the Sensex interim top of 18500. Thereafter, the US$/INR pair rallied to hit a life-time high of 57 levels by June again coinciding with the Sensex bottom (15748) Since June 2012, while the Sensex rallied and is now approaching its 2010 highs, the US$/INR pair retraced its 2012 rally by precisely 61.8% (Golden ratio) and is now oscillating in a range While the short-term trend for the US$ is weak and it may retest the levels of 53 over the next couple of months, we expect the US$/INR pair to embark upon the next leg of the rally towards 2012 highs of 57-57.50 during 2013 Such a flight for the US$/INR is expected to have a negative impact on the current bullish trend of equity benchmarks


Sectoral outlook and preferred stocks for 2013 BSE Bankex Exhibit 13: BSE Bankex – Monthly Candlestick Chart


The banking index has been in a secular up trend for almost four years since it hit the major trough around 3600 during March 2009. During its sustained up move in 2009-10, the index crossed its 2008 peak and made a new all-time high of 15108 during November 2010. The correction during 2011 found support near the 50% retracement of the previous major rally. In a structural bull trend, the 50% and 61.8% retracements of a major rally act as important supports often triggering key reversals. More recently, during 2012, the index continued its up move after the pause in 2011 and is currently trading closest to its all-time high. After the recent spurt in the index, there could be some bouts of profit takings within the larger up trend but the overall structure remains positive. The long term support for the index is placed in the range of | 12100-11400 based on following observations:

• Trend line resistance breached during September 2012 that is expected to reverse its role as support in case of declines and is placed around 11400 levels

• The 50% and 61% Fibonacci retracement of the up leg since January 2012 lows (9058) to all-time high of 15108 is placed at 12100 and 11400 levels, respectively

• The bullish demand line connecting the lows of 2009 (3599) and 2011 (8947) is placed around 11600-11800 levels

The above observation clearly signifies that a healthy corrective decline should be utilised to create fresh long position in banking stocks to ride the rally over the medium to long term.

Exhibit 12: Preferred Stock Picks for 2013

Scrip Name Target Large CapsPNB PUNBAN 780-810 990 708Ashok Leylend ASHLEY 24-26 34 20.5NMDC NATMIN 145-160 198 115BHEL BHEL 200-215 280 170Nestle India NESIND 4750-4950 5750 4400Cipla CIPLA 385-405 510 342Mid CapsJK Tyre JKIND 105-115 155 88Tata Global TATTEA 143-152 225 115Pidilite PIDIND 192-210 260 172AB Nuvo INDRAY 990-1030 1295 878TV Today TVTNET 73-80 120 56Sun TV SUNTV 375-395 520 338Mangalam Cement MANCEM 160-175 230 135

Buying range

Stop loss

I-direct Code


Punjab National Bank (PUNBAN) Exhibit 14: PNB – Monthly Candlestick Chart


The share price of PNB, a leading public sector bank, had been a leader during the 2009-10 rally. After correcting from its 2008 high of | 670 to the March 2009 low of | 266, the stock embarked upon a terrific bull phase that lasted till the November 2010 high of | 1323. The subsequent corrective phase lasted till August 2012 when PNB hit the major trough of | 659, which coincided with the major technical support for prices from a long term perspective.

• At August 2012 low (660), the stock price has corrected the 2009-10 rally (266-1323) by 61.8%, which is a golden Fibonacci retracement

• The above retracement also coincides with the 2008 peak, which expectedly reversed its role and acted as a support

• The August 2012 low is on the trend line connecting the lows of the quarter ending March 2003 and March 2009

• The 14 month RSI is poised at its own bull market support reading around 40. Such a reading has produced a significant rally in the past

• During May and August 2012 the stock has hit the double bottom at | 660 making it a strong support area even from a medium-term perspective

We expect PNB to embark upon the next up leg once the current consolidation is over, which is already five months old. Over the next few months, the stock price is expected to rally towards a significant resistance around | 990, which is the 50 retracement of the 2011-12 decline (1323-659) and major swing high of November 2011 and March 2012

We expect PNB to embark upon its next up leg once the current consolidation is over, which is already five months old. Over the next several months, the stock price is expected to rally towards a significant resistance around | 1050, which is the 61.8% retracement of the 2011-12 decline (1323-659) and the target of a potential double bottom formation

Strategy: Buy in the range of | 780-810 Target: | 990 Stop loss: | 708


BSE Auto Exhibit 15: BSE Auto – Monthly Candlestick Chart


The Auto Index has embarked upon a strong up trend forming a sequence of higher peaks and higher troughs on a monthly time frame for the last four years. The index witnessed a multi fold rally during 2009-2010 rallying from a low of 2128 in December 2008 to a high of 10536 by November 2010. After the multi-fold gains in two years, the index entered into a consolidation phase over the next 20 months in the range of 10800–7900. However, more recently, the index has achieved a significant bullish break out from this consolidation promising substantial upsides. We take a cue from long term trend analysis.

• As per Dow Theory, consolidations or line are treated as secondary movements within the primary trend. The index rallied from 2128 to 10536 during 2009-10 and then consolidated in 2900 points range over the past two years

• During November 2012, the index completed a strong break out on a monthly closing basis from this range

• Such a break-out signals a fresh uptrend in the stock and pattern implication projects minimum upside towards 13700. The price target is worked out by measuring the depth of the pattern (10800-7900 = 2900 points) and adding the same to the break-out level (10800 + 2900 = 13700)

• The monthly long term MACD has given a buy signal over its nine periods average and is comfortably placed above its trigger line, which supports the positive momentum in the index


Ashok Leyland (ASHLEY) Exhibit 16: Ashok Leyland – Monthly Candlestick Chart


After hitting an all time high of |39 levels around mid November 2011 the share price of Ashok Leyland entered a corrective phase lasting September 2012. The most important observation on the long term price chart is that the stock hit a double bottom at an extremely important support level during late December 2011 and thereafter at September 2012 lows. The said double bottom formation has occurred precisely at the 61.8% (Golden Fibonacci ratio) retracement of the seven-fold rally during 2009-10 (| 6-39). A key bullish reversal pattern formed at a major Fibonacci retracement support augurs well for the share price going ahead. The volume behaviour also indicates renewed participation in the stock. During the October 2010-September 2012 correction, volumes have been tepid while they expanded over the past three or four months. As per Dow Theory principle, volume expanding in the direction of the primary trend is a healthy sign. This new technical price set up along with up trending MACD indicator suggest further upsides in the stock over next few months towards 76.40% retracement of 2010-2012 correction which is placed at | 34.50

Ashok Leyland: After a seven-fold rally during 2009-10 (| 6-39) the stock corrected the entire rally by 61.8% (Golden Fibonacci ratio) and hit the Double bottom around | 19 and rallied back to | 27 over the past three months

Strategy: Accumulate in the range of | 26- 24 Target: | 34 Stop loss: | 20.50


JK Tyre & Industries (JKIND) Exhibit 17: JK Tyre – Monthly Candlestick Chart


The stock witnessed a seven fold rally during 2009-10 rallying from a low of | 24.60 in March 2009 to an all-time high of | 215.50 by April 2010. After the multifold gains in a year, the stock entered a corrective phase over the next 18 months whereby the major rally of 2009-10 was retraced by almost 80% towards the end of 2011. In a structural bull trend, the 80% retracement of a major rally acts as an important and powerful catalyst often triggering key reversals. The share price of JK Tyre embarked upon a steady uptrend since the start of 2012. The entire up move over the past 12 months has been a well measured affair as the stock formed a series of higher peaks and troughs on the weekly charts, which indicates that bulls are back in the rhythm. While carrying on with the uptrend in 2012, the stock gave an important breakout past a year long Rounding bottom formation above | 106 levels, which was accompanied by strong volumes. A Rounding bottom occurs at the end of downtrends and represents a long consolidation period that signals a shift from a downtrend to an uptrend. Following the break out, we expect the stock price to retrace the 2010-11 decline (215-58) by 61.8%, which is placed at | 155. Key supports:

• The rounding bottom breakout level of 106 is likely to act as a strong support and a re-test of the same is expected to garner fresh buying interest

• The long term 52 week exponential moving average for the stock is currently placed at 101 levels

• The value of the rising trend line formed by connecting the higher lows since January 2012 is placed at 106 levels

The rounding pattern breakout in JK Tyre also resulted in a positive crossover of the key medium term and long term moving averages as the 21 week EMA crossed over above the 52 week EMA during August 2012. The crossover of important moving averages signals that the primary trend has turned bullish post which the medium-term and long term moving averages start trending northwards Strategy: Accumulate in the range of | 105-115 Target: | 155 Stop loss: | 88


BSE Metals Exhibit 18: BSE Metals – Monthly Candlestick Chart


After the sharp bounce between January 2009 and April 2010 from the levels of 4407 to 18736 levels, the Metal index entered a corrective phase over the next 18 months whereby the major rally of 2009-10 was retraced by almost 61.8% towards the end of 2011. After the sharp up move in the first two months of the year, the index has corrected more than 80% of the entire up move in the next eight months signalling a slower retracement of the up move. More recently, the index during the last two months started its upsurge and closed above its 12 months EMA for the first time since April 2011. Two back to back Bullish candlestick pattern Bullish piercing lines and bullish engulfing candlestick patterns on a monthly time interval chart during June and September 2012 near the long term monthly demand line, along with the 61.8% retracement level, is likely to provide support in case of any corrective decline in the near term. These are currently placed in the range of 10000-9500. The monthly Relative Strength Index (RSI) is bouncing from an extreme oversold territory taking support at its 2009 value area, whereas the MACD is giving a buy signal in the monthly time frame.


NMDC (NATMIN) Exhibit 19: NMDC – Monthly Candlestick Chart


The share price of NMDC, a leading PSU mineral producer, hit the major low of | 107 during the 2008 market crash before embarking on a 13-month long bull trend, which produced the rally towards its life-time peak of | 523 during January 2010. Since then, the stock price has been consistently making falling peaks and troughs, thereby defining the medium term bear trend. However, during mid-2012, the price decline was arrested precisely at the 80% retracement of the major rally from 107 to 523 levels. Thereafter the stock made a steady base at the key retracement support (150) and after making a higher bottom during April 2012 at | 156, the stock rallied back to its medium term resistance of | 201 and, thereby, breached the falling bearish trend line, which connects the peaks of February 2010, May 2011 and November 2011, thereby signalling the end of a prolonged bear phase and start of a fresh uptrend The recent decline from | 201 over the past couple of months saw the stock testing a rising trend line support of December 2008 and December 2011 lows. This is placed in the range of | 145-152 over the next few months. The 14-week RSI is trudging sideways at this important price support and recent volume expansion is seen as a sign of value buyers entering the stock. We expect the stock to enter into a sustainable bull phase after a consolidation towards its medium term resistance around | 200 offering a good trading opportunity.

We expect NMDC to enter a sustainable bull phase after consolidation towards its medium term resistance around | 200, offering a good trading opportunity

Strategy: Accumulate in the range of | 145-160Target: | 198 Stop loss: | 115


BSE Capital goods Exhibit 20: BSE Capital Goods – Monthly Candlestick Chart


Capital goods returned to its medium term up trend after more then a year of corrective decline of around 50% from its 2010 peak of 16860. The Index made a major trough at 7807 during December 2011 to embark upon the next leg of the bull trend. The index has been trading in an up trend line rising channel for the last 15 months since October 2011. The lower band of the channel lies near the trend line joining the low of 2009 (5394) and low of 2011 (7807) and is placed at around 9800 levels. The index has been respecting its 52 weeks Exponential Moving Average (EMA) since breaking above it in May 2009 as the index bounced back several times taking support at the moving average only to breach the index in January 2011. After this, the EMA reversed its role and acted as a resistance for more then a year. Only recently, in September 2012, the index broke above the 52 week EMA, which is likely to act as a support in the near term. The monthly long term Moving Average Conversion and Diversion (MACD) is bouncing from an oversold territory in early 2012. During the later half of the year, the index has given a bullish crossover over its nine period average for the first time since May 2009.


Bhel (BHEL) Exhibit 21: Bhel – Monthly Candlestick Chart


The share price of Bhel has been in a medium term down trend since the October 2010 high of | 510 until it hit the major trough of | 191 during May 2012, which is also a long term technical support. The subsequent rally signalled the end of this two year old bear phase and offers investment opportunity based on the following technical observations:

• The yearly lows are major technical supports from a long term perspective as they have anchored significant upsides in the past. In case of Bhel, monthly lows of May 2012 (191) and September 2012 (195) are in the vicinity of yearly lows of 2007 and 2008

• Back to back two Bullish engulfing candlestick patterns on a monthly time interval chart during June and October 2012 validate the value area around | 190

• The stock rallied during October 2012 resulting in a breach of the long term bearish trend line, which connects all major swing highs since October 2012 and signals the end of the medium-term down trend

• While the major bull trend may take a while to unfold, the stock is expected to rally towards | 305. The key resistance is marked for the stock price at | 305 being the 38.2% retracement of the 2010-12 decline (510-195) and swing high of February 2012 (317)

• Extreme oversold readings on the weekly and monthly RSI could attract value buying

In Bhel, the yearly lows are likely to be major technical supports from a long term perspective as they have anchored significant upsides in the past. The stock rallied during October 2012 resulting in a breach of the long term bearish trend line, which connects all major swing highs since October 2012 and signals the end of the medium term down trend

Strategy: Accumulate in the range of | 200-215 Target: | 280 Stop loss: | 170


BSE FMCG Exhibit 22: BSE FMCG – Monthly Candlestick Chart


FMCG has remained in a secular bull trend since bottoming out in the latter part of 2008. The evidence of the strength of the index is seen in the fact that the index surpassed its 2008 peaks within a year in July 2009 and then rallied from strength to strength and made significant strides since then. The index hardly saw much of a correction during the 2010-11 decline and was the first to bottom out in early 2011. Thereafter, the index rallied to record its all-time high. More recently, in 2012, FMCG continued its up trend as the index sailed past the trend line resistance joining the highs of 2010 (3799) and 2011 (4274) in March 2012. Since then, the index embarked upon a steady uptrend. The entire up move over the last four years has been a well measured affair as the index formed a series of higher peaks and troughs on monthly charts. This indicates that bulls are into the rhythm. After the steep rally of the last four years the index can witness bouts of selling within a larger trend. The larger structure remains positive and long term support for the index is placed in the range of 5000-5200 on the basis of the following observations:

• The trend line resistance breached during March 2012 is expected to reverse its role as support in case of declines and is placed around 5000

• The 12 month exponential moving average (EMA), which has lent support during 2011 and 2012 declines is placed at 5184

• The bullish demand line connecting the lows of 2008 (1550) and 2012 (3972) is placed at 5000- 5100 levels


Nestle India Ltd. (NESIND) Exhibit 23: Nestle India Ltd. – Weekly Candlestick Chart


The share price of Nestle enjoys a healthy uptrend consistently forming higher peaks and troughs on the long term price charts. The price upmove since January 2011 is a well channelled affair as the stock continues to head northwards in an upward trending channel. The rising medium term and long term moving averages provide cushion to prices on any corrective price declines, indicating a healthy uptrend After hitting an all time high of | 4951 towards April 2012 the stock went into a sideways consolidation mode, oscillating between the broad range of 4350-4900 levels for almost eight months. While in the consolidation mode the share price made a steady base at the lower band of the up-trending channel which also coincided with the 52 week exponential moving average The recent price action has seen the stock register an upward breakout from the eight month consolidation range signalling resumption of the preceding uptrend Momentum oscillators on weekly chart remain firmly poised as the MACD remains in a rising mode whereas the 14 week RSI exhibits a classic bull trend as it has sustained above the 40 reading even during corrective declines highlighting the inherent strength in the trend Following the consolidation range breakout we expect the stock to embark upon further northward journey and venture into unchartered territories. Based upon 138% price extension of the previous up-leg from January 2012 low of 3883 to April 2012 high of 4951 from the recent higher bottom of 4291 levels projects a medium term target around the 5800 levels. Meanwhile the value of upper band of the rising channel over the next six to seven months is placed near 5750-5800 levels

The recent price action has seen the stock register an upward breakout from the eight month consolidation range signalling resumption of the preceding uptrend. While in the consolidation mode the share price made a steady base at the lower band of the up-trending channel which also coincided with the 52 week exponential moving average



Tata Global (TATTEA) Exhibit 24: Tata Global – Monthly Candlestick Chart


Tata Global has had a fabulous run in 2012 and the long term price chart continues to look promising for further gains. After underperformance during 2006-08, the stock began its first up leg during 2009-10 from | 50 to | 138. Subsequently, after 13 months of correction during 2011, the stock price began another bull run during 2012 in a manner of rising peaks and troughs. From an Elliott wave (EW) perspective, the stock price is in its cycle degree third wave of a Bullish impulse, which began from the 2011 lows of | 80. As per Impulse rules, the third cannot be the shortest wave and even the short-term count points towards the incomplete third wave. Therefore, we believe short-term correction in the stock should be seen as a buying opportunity. Using price projection methods, we have measured the length of the first up wave (43-134) and added the same to the 2010 high of | 134 for calculating the long term target. This method provides a target of | 225 for the stock price. Rising long term moving averages and up trending oscillators like 14-month RSI boost the validity of the count and overall bullish view

Tata Global’s stock price is in its cycle degree third wave of a Bullish impulse which began from the 2011 lows of | 80. As per Impulse rules, the third cannot be the shortest wave and even short term count points towards incomplete third wave. Therefore, we believe a short-term correction in the stock should be seen as a buying opportunity



Pidilite Industries (PIDIND) Exhibit 25: Pidilite Industries – Monthly Candlestick Chart


Pidilite Industries is one of the few stocks that has remained within a sustained Bull trend since 2009 lows of | 37 and there are no signs of trend reversal as yet. After an intermediate correction from | 181 to | 132 during 2011, the stock embarked upon the next leg of rally. We believe the stock would continue to offer buying opportunities in the coming year as well for investors through intermediate corrections. We believe the price range of | 180-190 should garner good buying support:

• The 38.2% Fibonacci retracement of the 2012 rally (132-223) is placed at | 189 levels

• During late August 2012, the stock price made a strong break-out from the bullish Cup and Handle formation above |181. The break out level of | 181 is expected to reverse its role from resistance to support in case of any corrective declines

• As per short-term wave pattern, the stock is in the downward `C’ wave of a Flat pattern, which is expected to end near the bottom of `a’ wave, which is around | 188

• The 14 week RSI, which is returning from an overbought territory is expected to hit its own support around 50 by the time the stock price corrects towards the 188-180 range

We believe Pidilite Industries would continue to offer buying opportunities in the coming year as well for investors through intermediate corrections. We believe the price range of | 180-190 should garner good buying support



BSE Healthcare Exhibit 26: BSE Healthcare – Monthly Candlestick Chart


After hitting its peak in 2006, the Healthcare Index consolidated in a range for two years when the rest of the market surged ahead. During the 2008 global turmoil, the index reacted from the upper band of the consolidation range to test the lower range. Since then, the index has been in a secular bull trend. It was among the few sectors that surpassed its 2008 peaks during the 2009-10 rallies and made significant strides since then. The index was the first to bottom out during the 2010-11 declines as it hit a major trough of 5757 during October 2011. Thereafter, the index rallied from strength to strength. While carrying on with the uptrend in 2012, the index gave an important breakout past the 18 months long rounding bottom formation above 6871, which was accompanied by support from oscillators. A rounding bottom occurs at the end of downtrends and represents a long consolidation period that signals a shift from a downtrend to an uptrend. Long term support for the index is placed in the range of 7200-6900 on the basis of the following observations:

• The breakout level from the rounding bottom as explained in details previously

• The 21 period EMA on the monthly time frame has acted as a strong support in case of any corrective decline, which is currently placed at 6900 levels

• Rising trend line support joining the lows of 2009 (2491) and lows of 200 (5757) is currently placed in the range of 7000-7100


Cipla (CIPLA) Exhibit 27: Cipla – Monthly Candlestick Chart


Cipla remains in a well established uptrend as it continues to head northwards in a rising peaks and rising troughs formation on the long term price charts. The stock witnessed a Double bottom formation around | 155-160 during 2007-08. The subsequent up move from thereon saw the stock rally more than 130% to hit a high of 380 towards late 2010. After the sharp up move, the stock entered a sideways consolidation phase, which saw the 2008-10 rally getting retraced by exactly 50% at the 2011 yearly low of | 272. This also coincided with the previous breakout region. The overall broad price movement from early 2010 till August 2012 was ranged between 365 and 275 levels. The stock witnessed a strong volume led breakout past the two-and-a-half year consolidation range during late August 2012 and has got back into its bullish rhythm thereafter. The minimum projected price objective based on 100% price equality with the previous up-leg suggests upsides towards 510 over the medium term. The upper band of the 32 month trading range and the recent breakout area of 365-375 is likely to reverse its role as a support for future price movement. Any pullbacks in the vicinity of this range are likely to garner fresh buying support.

Cipla’s overall broad price movement from early 2010 till August 2012 was ranged between 365 and 275 levels. The stock witnessed a strong volume led breakout past the two-and-a-half year consolidation range during late August 2012 and has got back into its bullish rhythm



BSE IT Index Exhibit 28: IT Index – Monthly Candlestick Chart


The index witnessed strong rally during 2003-07 from 943 to 5611. After this it witnessed a sharp decline from its February 2007 peak of 5611 to form a low of 1987 towards February 2009. The index bounced back taking support at the 80% retracement of the previous major rally. Since then, the index has been in a strong up trend. It surpassed its 2007 peaks during the 2009-10 rallies and made significant strides till the end of 2010. The index then went into a sideways consolidation from the start of January 2011 and has been trading in a broad 2000 points range from 7000 -5000 since then. During this consolidation, the index has bounced back taking support at the 38.2% retracement levels. The index consumed almost same time in the above consolidation as the time taken for the previous 2009-10 rally, signifying the primary bullish trend in the index. The consolidation is treated as a base formation for the next up move in the index. During the above consolidation, after the initial fall in the first half of 2011, the index has been trading in a rising channel. Hence, the lower band of the channel around 5400-5500 is likely to act as an immediate major support in case of any correction. We expect profit booking to intensify on a sustained close below 5400. This is likely to see the index head to test the 5000 region being the lower band of the last two years consolidation. On the higher side, 6200 and 6550 are likely to act as major resistances for the medium term.


BSE Oil & Gas Exhibit 29: BSE Oil & Gas – Monthly Candlestick Chart


The index has seen a multi-fold rally from 2878 to 14268 during 2005 till January 2008. In the global turmoil of 2008, the index corrected the previous major rally by more than 80%. More recently, over the past year, the index has formed two major lows around the 7400-7300 range. This is just above the 61.8% retracement mark of the rally from the 2008 low of 4570 to 2010 high of 11270. Every time it has managed a steady bounce from this region, indicating strong support at the key retracement of a major rally. Back to back two Bullish engulfing candlestick patterns on a monthly time interval chart during January and June 2012 validate the value area around the 61.8% retracement mark. The two distinct lows formed during January and June 2012 resulted in a potential Double Bottom at the support level on the monthly chart. Immediate major hurdle for the index is seen at the 8900-9000 region being the long term supply line joining the high of 2008 (14268) and high of 2010 (11270). A strong close above the trend line is required for a reversal in trend. Monthly long term moving average conversion and diversion (MACD) is bouncing from an oversold territory in early 2012. During the latter half of the year, the index gave a bullish crossover over its nine period’s average. Such a reading has produced a significant rally in the past.


Aditya Birla Nuvo (INDRAY) Exhibit 30: Aditya Birla Nuvo – Monthly Candlestick Chart


The share price of Aditya Birla Nuvo has been consolidating in the range of | 1000–700 over past three years. However, more recently, the stock has achieved a significant bullish break-out from this consolidation promising substantial upsides. We take a cue from long term trend analysis.

• As per Dow Theory, consolidations are treated as secondary movements within the primary trend. The stock price rallied from | 330 to | 1030 during March–August 2009 and then consolidated in a 300 points range over the past three years

• During November 2012, the stock completed a strong break-out on a monthly closing basis from this range supported by above average volumes

• Such a break-out signals a fresh up trend in the stock. Also, pattern implication projects minimum upside towards | 1300. The price target is worked out by measuring the depth of the pattern (1000-700 = 300 points) and adding the same to the break-out level (1000 + 300 = 1300)

• Monthly RSI is sporting readings above 60 for the first time since February 2008 indicating underlying strength in the medium term up trend

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The share price of Aditya Birla Nuvo has been consolidating in the range of | 1000 – 700 over the past three years. However, more recently, the stock achieved a significant bullish break out from this consolidation promising substantial up sides



TV Today Network (TVTNET) Exhibit 31: TV Today Network – Monthly Candlestick Chart


The stock has had a roller coaster ride since its debut on the bourses since 2004. It witnessed a sharp decline from its December 2007 peak of | 180 to form a low of | 43 towards October 2008. The pullback from the 2008 lows fizzled out around | 138 levels towards late 2009. Thereafter, the stock witnessed a grinding decline to revisit the 2008 lows. The stock went into a sideways consolidation mode for almost 18 months from January 2011 to September 2012 forming a steady base near its all-time lows. During late September 2012, the stock finally ventured out of the long term base formation by registering a strong close above 65. Volume behaviour during the consolidation phase and post the corresponding breakout further validates the long term base formation on the charts. After a sharp sell-off, volumes dried up during the consolidation phase indicating lack of selling pressure and reluctance of prices to fall further. On the contrary, the breakout from the consolidation range saw abnormally high participation. Volumes kept increasing post the price breakout indicating renewed interest by market participants after a long period of slumber. The price up move post the consolidation breakout saw the stock pierce through a long term resistance trend line formed by connecting the major peaks of 2007 and 2009. The violation of the long term resistance trend line post a major base formation indicates a major turnaround in the price trend. The long term and medium term moving averages have turned northwards and indicate a firming up structure.

The price up move in TV Today post the consolidation breakout saw the stock pierce through a long term resistance trend line formed by connecting the major peaks of 2007 and 2009. The violation of the long term resistance trend line post a major base formation indicates a major turnaround in the price trend. The long term and medium term moving averages have turned northwards and indicate a firming up structure



Sun TV (SUNTV) Exhibit 32: Sun TV – Monthly Candlestick Chart


Sun TV witnessed a strong rally during 2009-10 rallying from a low of | 123 in November 2008 to an all-time high of | 556 by January 2011. After the multifold gains in two years, the stock entered a corrective phase over the next 17 months whereby the major rally of 2009-10 was retraced by 78.6% towards the middle of 2012. In a structural bull trend, key retracement levels (38.2%, 50%, 61.8% & 78.6%) of a major rally act as an important and powerful catalyst often triggering key reversals. During October 2011 and June 2012, the stock made a Double Bottom at the | 215-220 range, precisely near the 78.6% retracement level of the previous major rally. The Double Bottom Reversal is a bullish reversal pattern. As the pattern name suggests, the double bottom formation is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between. It marks an intermediate or long-term change in trend. After registering a breakout from the Double Bottom formation, the stock has entered a steady uptrend and is seen forming a series of higher peaks and troughs on the weekly charts. This indicates that bulls are back in the reckoning after the corrective decline got arrested at the major retracement level. Volume behaviour during the pattern formation and post the corresponding breakout further validates the long term base formation on the charts. Rise in volume along with rise in price suggests larger participation in the direction of the trend. The monthly long term MACD has generated a bullish crossover above its nine period’s average at the time of price breakout. The subsequent price up-move has seen the MACD move above its trigger line, which suggests strength in the primary trend.

After registering a breakout from the Double Bottom formation Sun TV has entered a steady uptrend and is seen forming a series of higher peaks and troughs on the weekly charts. This indicates that bulls are back in the reckoning after the corrective decline got arrested at the major retracement level



Mangalam Cement (MANCEM) Exhibit 33: Mangalam Cement – Monthly Candlestick Chart


The stock price of Mangalam Cement hit its life-time high of | 258 in early 2007 and then tanked to record its major trough of | 38 in late 2008. The rally since 2009 and intermediate higher bottom during 2011 (76) has produced rising peaks and trough formation on the month time interval charts. During September 2012, the stock price breached its major bearish trend line connecting January 2007, October 2007 and February 2012 highs indicating a major shift in long term trend from bearish to bullish. The subsequent price rally has currently halted near the April 2010 highs leading to profit bookings in the short-term. We expect the stock price to correct in the short-term. However, the long term chart suggests such a correction would be a buying opportunity. Since the beginning of 2012, the stock price has not corrected more than 30-35 points. Therefore, such a correction from the recent high of | 192 would be seen as a crucial support. This projects support at | 162. Also, the 50% retracement of the June-November 2012 rally (117-192) is placed at | 155. The confluence of both methods indicates a value area in the | 155-162 range. Declines closer to this support range, are expected to garner fresh buying support. A strong break out past | 192 would take stock price to a new orbit and open up substantial upsides.

We expect Mangalam Cement to correct in the short-term. However, the long term chart picture suggests such a correction would be a buying opportunity. Since the beginning of 2012, the stock price has not corrected by more than 30-35 points. Therefore, such a correction from the recent high of | 192 would be seen as a crucial support. This projects a support at | 162. Also, the 50% retracement of the June-November 2012 rally (117-192) is placed at | 155 level



Commodity corner – Technical perspective Exhibit 34: Gold Index - Weekly candlestick chart


Exhibit 35: Brent Crude – Weekly Candlestick Chart


Gold Index View: Heading for re-test of all time high International gold prices remained in a range for over 15 months after a stupendous rally during 2009-2011. After hitting a life-time high around $1921/per ounce prices retraced the 2009-2011 rally by 38.2% Since then, prices have thrice hit the lows in the region of $1550 and advances have been limited to $1800 during the past 15 months. The consolidation at the 38.2% retracement, however, augurs well for the long term up trend of gold prices. We expect the recent decline in gold to find support in the region of $1600-1630 being the confluence of the 61.8% retracement of the trading range and 100 week SMA, which has acted as good support for prices during the consolidation We expect the next up leg for prices to open post consolidation near $1600 and then embark upon the next up leg towards $1800. Then we expect it to achieve the life-time highs of $1920. Therefore, we maintain our bullish stance on gold prices Brent crude: Upsides capped

Brent crude prices have been trading rudderless recently. A quick look at the long term picture of Brent crude highlights some interesting facts After a steep fall during 2008, crude prices were able to retrace the entire fall only by 80% after a span of almost four years. This indicates the corrective nature of the up move. Therefore, we believe prices are prone to significant headwinds at this key retracement The medium term charts indicate a range bound play in crude prices. For 2013, we expect Brent crude to face a strong hurdle around $125/barrel while a medium term trend line (in Blue) shown on the adjacent chart is expected to lend support to prices around $90-92/barrel


Pankaj Pandey Head – Research [email protected] ICICIdirect.com Technical & Derivative Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai – 400 093 [email protected]

Disclaimer The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Ltd (I-Sec). The author may be holding a small number of shares/position in the above-referred companies as on date of release of this report. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

NOTES:

• Please initiate the trade within 1-2% range of the recommended price • Once the call is initiated, an appropriate Stop Loss trigger should be put for the trade • Once into the position, put trailing stops to preserve your profits • The strategies are valid for a year beginning the date of the report • Positions may be squared off by the end of the year • The writer may have position in the stocks discussed.

MOST IMP: The follow-up and performance review table of the strategies indicates the profit opportunity that was available in the strategies. Individual profits may vary depending upon the entry and exit price and stop losses.

Technical Strategy 2013 December 28, 2012

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