In a previous piece, https://www.plindia.com/blog/emerging-markets-a-breather-rally-around-the-corner/ we had talked about how emerging markets may start showing some strength and how the Indian midcap space may follow soon with rallies. Both these have unfolded in recent weeks , for various reasons, as the Nifty shot up taking broader markets along.
Interestingly, In doing so, the Indian Midcap Indices made some interesting patterns – They held the near term bottoms and now are making interesting formations on the long term chart patterns .These could be powerful hints of where they are willing to settle in the future.
Of course, in the short term, as we had sharp rallies, we may have jitters as markets retrace some of the gains but it does look like we are getting ready for a blowout season for Midcaps over the next 365-730 days!
The BSE Midcap Index Monthly charts have retraced from the bottom end of a linear regression line – forming since 2011- and this bottom also coincides with the “mean/average” of the longer term Bollinger Bands. Highly likely therefore that the bottom will hold without prejudice! And possibly head much higher over the next 12-18 months.
Also while the MACD is not showing a crossover yet, it has begun to make what could be signals of a possibly much higher acceleration up ahead at some stage.
The Nifty to Midcap ratio, which we have tracked very closely for more than 2 years now as an important sign of relative direction, is indicating a topping out pattern and may decline – Now this may happen either because Nifty declines OR because Midcaps rise or both.
We believe the scenario will possibly be as follows – Nifty will consolidate between 11000 and 13000 levels over the next 2 years even as Midcaps race away. Or something very similar to that? The potential outperformance indicated on these charts is an awesome 50% plus!
The strengthening of emerging markets in recent weeks , (Note its highly possible that near term retracements of the recent rise will lead to market declines in October,traditionally a weak month plus overbought conditions – another trigger is that the results season gets under way), will also probably allow the broader markets to settle down in a steady acceleration mode over the next few months.
And remember, the Nifty is unlikely to do much in the short term – a possible rise to 12000 is the maximum though falls prior to that are also likely – so keep track of the broader markets separately as they may exhibit delinked behavior.
So hold your breath and let the moves unfold!
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Disclaimer: The above is in the nature of elucidation of certain concepts and observations and does not constitute any recommendation of any kind.