Nifty Midcap 100 trades in a falling wedge pattern

Nifty has fallen 31 per cent from the January 2018 high of 21840 to 14975 on August 18th. With this fall, 60 per cent of the mid caps fell by over 50 per cent on an average. There have been several attempts to form a higher high in the past. In the last 20 months, it has managed to cross the long term moving averages at least four times. However, these positive moves were short-lived, just for about 3 to 4 weeks. Since the last 9 weeks, it is moving higher, making some higher lows, but yet to make the higher highs. Last week, it has just managed to move above the short term moving averages.

At the same time, Nifty Midcap 100 is forming a falling wedge pattern. It is yet to make a higher high and a higher low. Last week, it was able to close above 50 DMA or 10 weeks moving average. However, the long term moving averages of 100 and 200 DMAs are still in down trend and about 3.5 per cent away. Interestingly, the resistance line of the falling wedge is also placed at the same level. The class B positive divergence in RSI is forming a similar pattern as well. The RSI has already reached  the resistance line. This is an early sign of a price breakout. The MACD has given a buy signal by crossing over the signal line and the histogram has turned green on the weekly chart. The stochastic oscillator also has given a buy signal in tandem with MACD. In any case, if the index moves above the recent swing high of 16,874 or breaks above the sloping resistance line of falling wedge pattern, then it will give a confidence to the bulls. Until then, we can consider the current upswing to only be an attempt to overcome the oversold condition. If it closes above 16,874, the falling wedge pattern target will be above the prior lifetime high of 21,840 to 22,100. As this falling wedge has formed in 20 months, the targets may reach in 12-15 months period. But if it is unable to close above the sloping resistance line, then it will test the prior lows again.

Fundamentally, Nifty Midcap 100 is trading at 24 PE. In the last year, it has underperformed with 8.62 per cent negative growth. The major reason for under-performance in the index has been the financial services sector that carries a weightage of about 26.2 per cent. The recent NBFC crisis has led the stocks to underperform.