Monday, January 6, 2014

NSE Midcap: important trend reversal and divergence!

The below research is by Waves Strategy Advisors. Visit
NSE Midcap and Small cap index has shown strong performance from the August 2013, lows. 
If we go statistics wise then both indices have outperformed the market by surging 29 per cent each from their August lows, as compared to 17 per cent rise in benchmark index. However, both these indices are still far away from their all-time highs touched in 2008.
Recently, on 2nd January 2013, we witnessed sharp fall in Nifty. The important observation is that from last 3 months whenever Nifty corrected on downside, Midcap and Smallcap index showed out-performance and protected their important support. However, in the recent fall Midcap andSmallcap index even participated and fell by almost 2.5% each.
Now the question arises, will both indices continue their outperformance or short term correction has started? We are using advanced Elliott wave theory along with basic technical analysis which helps in forecasting for long term to short term.
Below we have shown part of research taken from “The Financial Waves STU” which was published today morning.
NSE Midcap Index Daily chart:

           Waves Analysis:

For NSE Midcap, after strong outperformance from last 4 months now this index has arrived near crucial levels. In the sharp fall of 2nd January 2013, even Mid-cap index participated and fell by almost 2.5%. This fall has made big bearish bar which has covered prior 6 bars that suggest bears may take control from current level.

As shown in daily chart, since September 2013, prices moved higher in impulsive way in form of intermediate wave A. We can see that, it moved higher in form of 5 waves, and sharp fall of 2nd January 2013, suggest that it may have completed minor wave v at 8200 levels and started to move lower in form of intermediate wave B.

As per time perspective, minor wave v took 12 days and if prices take out 7600 levels from where wave v started in less than 12 days, then we will get price confirmation along with time confirmation, which will add to the negativity. Prices have made small upward moving channel as shown by blue color and the support is placed at 7800. Move below 7800 levels will provide negative confirmation. MFI indicates triple negative divergence which suggests that prices are in matured stage of up move.

In short, move below 7800 level will indicate that next leg on downside has started and move towards 7100/7000 is possible where 61.8% of intermediate wave A is placed. This will also indicate end of outperformance of high beta stocks and over next few months this sector should now start underperforming Nifty.

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