NSE Midcap index at crucial Fibonacci resistance of 61.8%, Bank Nifty continues to underperform

The below research is picked up from the daily report "The Financial Waves short term update" consisting of Nifty and 3 stocks along with Bank Nifty and Midcap index on periodical basis. For more details visit http://www.wavesstrategy.com/Pricing.aspx

NSE Midcap weekly chart:

NSE Midcap daily chart:

Wave analysis:

In the current up move of Indian Equities we witnessed that participation was seen in beaten down stocks whereas many of the outperforming Midcap stocks has lost upside steam and has been trading in sideways to negative action. During this scenario it is necessary to look at NSE Midcap index to understand medium term structure.

Above we have shown in weekly chart of NSE Midcap index which has been providing vital information. Since 2009 prices have been intact in upward moving channel.  We can see that this blue channel has been working brilliantly. The top made at 14500 level in the mid of August 2015 is exactly at the zone of channel resistance. Moreover the down move witnessed from 14500 to 12130 has retraced the last leg of up move in faster time. This provides time as well as price confirmation that important top has been made in this index which will not be taken out for next few months. This is one of the reasons behind why Midcap and Smallcap stocks are not showing much strength in the current up move.

Importance of 10 and 20 weeks Exponential Moving Average: During the entire rally witnessed from mid of 2013 till August 2015, 10 weeks EMA (red color) sustained above 20 weeks EMA (blue color) and prices continued the up move. However after span of 2 years, for first time 10 weeks EMA has moved below 20 weeks EMA which suggests that the trend might be reversing to downside.

Indication from Money Flow index and MACD: Money flow index takes into consideration price as well as Volume to judge the strength of weakness of any trend. We can see that from mid of 2014 Midcap index continued to move higher with lesser momentum and Volume were decreasing constantly. When prices made a high at 14500 level, Volumes were drastically lower as compared to previous peak. This is providing the early indication that up move was with lesser participation and also suggests that best of the up move has been done in this index. Weekly MACD has been constantly failing to move above blue line and reversing on downside. This also suggests that momentum has been slowing.

As shown in daily chart, in the mid of August 2015 prices completed minor wave a at the low of 12130 and post that minor wave b is ongoing which is now close to the 61.8% retracement of the prior down move which is now placed at 13500 level. Any sharp down move below 13000 will provide the first confirmation that minor wave c on downside has started. For further confirmation prices need to break 12130 level.

In short, we do not think major up move is possible in Midcap index from current level based on Elliott wave theory, Exponential moving averages, MACD, Money flow index and Fibonacci retracements. Hence one should trade in Midcap and Smallcap stocks with strict risk management. Move below 13000 will indicate that move towards 12130 has started. Further move below 12130 will indicate medium term negativity.

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