Analysis of Nifty 10% down, still room for correction

I follow a very different indicator to evaluate the market levels and to answer the question--How much is too much? We do quant analysis for North American Markets, however due to my personal interest I do test the levels of Nifty too.

This indicator is based on the theory of mean convergence, everything need to converge back to towards its mean and the comfortable zones of activity are upto the standard deviations.

I like to check the index overshoot beyond its Moving Averages (50 day, 100 day and 200 day). Moving Averages are lagging indicator but this overshoot make them leading indicators too to an extent.

For nifty, historically if it overshoots by 15.33% more then its 100 day moving average, its time to be cautious. Next level is 24.9%. Highest ever overshoot was of 88% in early nineties.

Nifty historically has stayed for 13% of its days in this overshoot range of beyond 15%. So even though you book profits at these ranges, you do expectionally well, they serve as good stop losses too.

Current rally took nifty to a overshoot of 43% beyond its 100 day moving average, and that was way too much. The correction has brought us back to 26% which is still bit over extended. So on short term I would like to wait and I will open new positions only once the range of overshoot is under 15% levels.

One more thing is, in 17 years of nifty data I analysed whenever nifty crossed the 25% level, it fell back to its Moving Average or below it, before it made a new neat upmove. Now this time if we get a special outlier, great, but I dont believe in planning around execptions and so personally will wait for some further correction or atleast a consolidation.