Technical Analysis of Market Trends - December 2014 :: Edelweiss, PDF link

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• We expected a rally in December based on our seasonality analysis but the market reversed from its overbought readings, with the NSE Nifty falling more than 6% from the recent swing highs. The recent decline in Nifty has been in line with a selloff in global equity markets. The medium term trend is still up. The short term decline has now taken the RSI to oversold zone for the first time in the past one year.
• Nifty’s monthly chart has formed a bearish candle in December and is now at 6-month’s exponential average support. It has never closed below this average since August 2013. From its recent swing highs, the Nifty has fallen more than 660 points till now, which is the largest decline since Aug’13.
• Imposition of stricter sanctions on Russia by USA for Kremlin’s role in the Ukraine’s crisis, coupled with the steep fall in crude oil, has sent Russian Ruble into a tailspin. The Russian currency has fallen more than 50% in the last one year. The recent developments have sparked concerns about other Emerging Markets (except China). Until the geopolitical scenario remains nervous, global equity markets will show rise in volatility.
• Inflation in India is continuing on the downward trajectory and the CAD remains at comfortable levels. The RBI governor has indicated that a rate cut early next year is likely. With the Government taking measures to boost growth by increasing the speed of project clearances, by making land acquisition & labour laws favorable for business and by launching the “Make in India” program, we believe growth will start to pick up sooner rather than later. Narendra Modi Government’s measures, along with RBIs support through flexible monetary policy, will provide the required support for the domestic economy’s growth.
• Crude oil continues to slide in December also. This is the sixth consecutive monthly fall in crude oil, which is the largest loss since the fall in 2008. After making a high of $107 in June 2014, crude has declined sharply and is now down ~44% for 2014. In the year 2008, it was down by 53%. The latest decline in crude oil will be favorable for the Indian economy and the impact of the same is expected to be seen over the next few months.
• The bullish move in Nifty from 6,150 to 8,626 hasn’t seen any material profit booking or correction. The recent fall in Nifty to 8,000 can be termed as the year-end window dressing by FII’s. The consolidation can be expected within the range of 7,800 to 8,250 for the month. We remain bullish for the long term.

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