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In this week's Dissector we take a look at CNX Midcap Index. The main objective of this index is to capture the movement of the medium-capitalised segment of the stock market. It is the segment's benchmark index.
After bottoming out at March 2009 low of 2,930, the CNX Midcap Index has been on a steady uptrend until it encountered resistance at around 9,781 (also its January 2008 peak) in November 2010. Registering an all-time high in the same month at 9,853, the index peaked out, triggered by negative divergence in weekly indicators. Since then, the index has been on an intermediate-term downtrend.
Encountering resistance again at 8,000 in late February 2012, the CNX Midcap Index resumed its intermediate-term downtrend. The index then emphatically penetrated its long-term support as well as its 200-day moving average at 7,200 during first week of May. It is hovering well below both the 50 and 200-day moving averages. In the previous week, the index was choppy and fell 1.9 per cent — or 129 points — to close at 6,785.3, strengthening its ongoing downtrend.
The index can prolong this downtrend and test its immediate support at 6,500. In the forthcoming months, the CNX Midcap index can test its long-term support at 6,000. A conclusive tumble below this support will pave the way for a decline to the next key support band between 5,400 and 5,500. As long as the index trades below the significant long-term resistance zone between 8,000 and 8,100 and the key intermediate-term trend deciding zone, its present downtrend remains in place. A decisive rally above the aforesaid resistance zone is needed to alter the downtrend and take the index higher to 8,500 in the long-term. Next important resistance is positioned at 9,000.
Medium-term view
Following an up move that started from the December 2011 low of 6,030, the index met with a key hurdle in February this year at 8,043. Since then, the index has been on a medium-term downtrend. It is now testing a key support level at 6,800 which also coincides with 61.8 per cent Fibonacci retracement level of its prior up-leg. The daily relative strength index is featuring in the bearish zone and the weekly RSI has entered this zone from the neutral region.
The weekly moving average convergence divergence indicator is on the brink of entering the negative terrain implying downward momentum. Strong breakthrough of 6,800 will pull the index lower to 6,500 and then to 6,250 in the ensuing weeks. Next key support is at 6,000.
On the other hand, a bounce from the current support will encounter resistance around 7,100 and then at 7,300. To alter the downtrend, the index has to emphatically surpass its significant resistance at 7,500. In that case, the index can trend higher to 7,800 or to 8,100 in the medium-term.
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