Midcap Bears look exhausted may initiate reversal

Indian stock market investors are bewildered whether to wait for some more correction or start buying or averaging on dips at current levels. As expected, markets corrected, the catalysts being worse than expected Union Budget followed by weak global cues.

Well-before the Indian benchmark indices witnessed the reversal from their all-time high levels, the broader market Bulls were already exhausted and Bears initiated their southward rally. Talking of the Midcap index, here S&P BSE Midcap, Bears took the charge on January 9 itself when Sensex had just initiated its upside rally.

Midcap index still halted for four consecutive sessions thereafter and tumbled on January 16. Thereafter, Midcap index gave its first lower top on January 24 and since then has fallen nearly 13 per cent.

On February 6, the index witnessed a gap-down opening, fell up to its major support at 15736-15786 levels, made during October 11 and 12, 2017. The index bounced back in the afternoon session to close down by just 1.7 per cent at 16,281 levels.

The Midcap index has thereby formed a kind of Hammer pattern on the daily charts which would be confirmed with next day’s positive closure. Further, the oscillators like RSI and Stochastics are lying in the oversold zone, where Stochastics attempted a positive crossover. Moreover, the ADX Average has breached 20 levels after giving a positive crossover to the PDI (Plus Directional Indicator) and the NDI (Minus Directional Indicator) shows a reversal from above 40 levels. Most importantly, the 13-34-55 EMA shows 13 Days EMA crossing 55 Days EMA level, which depicts bottom finishing and reversal may be in a couple of sessions.

As it is the indices move in a cyclical direction and hence, as stated, if the Midcap and Smallcap see a reversal, we may see benchmark indices too reversing may be after a couple of weeks.