BSE Midcap Index Monthly Chart as on July 31, 2013

We have been expecting capitulation in India's Mid and Smallcap stocks since Feb 2013. We are seeing every mid and smallcap stock is falling like there is no tomorrow which suggests last phase of fall has already started. The silver lining is we expect bottom in Mid and Smallcap Indexes in near future - 1-2 months and then we expect sideways/range bound movement for next 8-10 months before they start new bull run.

We attach BSE Midcap Index monthly chart (last close 5543).

If we see above monthly chart we can clearly see that Midcap Index is getting ready to take support sometime in next 3-4 weeks wherein rising trendline drawn from connecting 2003 lows and 2009 lows will give strong support. If we check CCI(10) we see that today it is -155 and note that during last 10 years we saw support in Midcap Index when CCI(10) was -164 in Oct 2008 - Lehman Bros collapse and at -165 in Dec 2011 :-). Note that our trend indicator still suggests Red - down trend currently in Midcap Index and we will update as and when it turns green.

We attach one more chart which gives us Midcap/BSE Sensex ratio - our favorite indicator monthly chart which tells us if Midcap is out-performing largecaps.

If we see above ratio chart we see that Midcap has been under-performing largecaps since 2005. We have gone much deeper in history and noticed this ratio goes in alternating cycle of rising and falling for 8 years so 2013 being 8th year Midcap/BSE Sensex ratio may bottom in 2013. Secondly, See trendline drawn connecting 2003 lows and 2009 lows on closing basis and we see ratio may get good support in next 3-4 weeks before it start uptrend.

We are ready with cash and will start deploying our cash in our favorite Export and Sugar/Agri sector in parts over next few months.

Posted in: Indian Market