Over the last few months we have seen a major sell-off in the midcap index while the headline index has still help up. With the recent fall in the headline index people were of the point of view that the fall in midcaps could get worse. What do the charts say?

Midcap/Nifty Ratio Charts

The ratio chart represents the 200 bollinger band with 2 standard deviation. Using a larger number for bollinger bands generally is useful in identifying extreme optimism or pessimism.

  1. In the above chart the ratio has moved below the band with the RSI also bouncing up from an oversold condition.
  2. The ratio is attempting to move above the lower band indicating a reversal.

In other words we are looking at what could possible be a mean reversion in the ratio chart. With the Nifty having a strong support at 11,100 we have a strong possibility of a midcap rally over the next week or possoibly two.