Technical outlook: Is there steam left in mid-and-small caps?

Share on whatsapp
Whatsapp share
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn
by invitation

The benchmark Nifty 50 index has been drifting lower since February 16, 2021 when it recorded a high of 15,431.8. While there has been some recovery in the past few weeks, the real action has shifted to the broader markets. Lots of stocks from the mid-cap and small-cap sectors have continued to seek higher levels even as the Nifty 50 index has been struggling in a broad range.

Nifty midsmallcap 400

The Nifty MidSmallCap 400 index hit an all-time-high of 8,822 on May 12, 20201. Let us assess the technical structure of this index to see if there’s room for a further rally.

General trends

To begin with, here is the Point & Figure chart of Nifty MidSmallCap 400 index with probable targets calculated using the Vertical Count methodology associated with Point & Figure charts.

The chart looks undoubtedly bullish with the price trading near all-time highs. As highlighted in the above chart, the target based on vertical count method works out to 9,055 and 10,081. These targets would be invalidated if the Nifty MidSmallCap 400 index closes below 7,250. From a short-term perspective a close below 7,950 would be an early sign of weakness.

Next, consider the relative strength chart of versus Nifty 50 index. Here is the relative strength chart of Nifty MidSmallCap 400 versus Nifty 50, captured in the Renko charting format.

This suggests that the Nifty MidSmallCap 400 index is comfortably outperforming the market benchmark. The above chart is in a strong uptrend with the price trading well above the moving averages. This confirms that the Nifty MidSmallCap 400 is outperforming the Nifty 50 index.

Breadth indicators

Third, take a quick look at the short-term breadth indicator of Nifty MidSmallCap 400 index. This metric corroborates the possibility of further rally in the Nifty MidSmallCap 400 index. The short-term breadth indicator – measured by percentage of stocks trading above their 50-day moving average – has recovered smartly from the oversold levels recorded last month.

As highlighted in the chart below, the Nifty MidSmallCap 400 got into a consolidation mode which helped the short-term breadth indicator cool off from overbought levels. The subsequent recovery in the price has been backed by a corresponding recovery in the breadth indicator. This a sign of broader participation of stocks from the mid and small-cap universe.

Fourth, consider the long-term breadth indicator, measured by percentage of stocks trading above their 200-day moving average. This indicator is also projecting a positive picture for this index. The current reading for this indicator is 84%, indicating that the majority of the stocks from the index are bullish and also trading above their 200-day moving average.

The only cause of concern is that this long-term breadth indicator reading of 84% can also be interpreted as a cautionary signal. With majority of the stocks already in the bullish zone, the breadth indicator has reached overbought levels. While this is not necessarily a red flag or a sign of potential reversal, it pays to be a little cautious about taking fresh aggressive exposures when the breadth is overbought.

Conclusion

The short-term outlook for the broader markets, represented by the Nifty MidSmallCap 400 index is bullish. There is a strong case for a rally to the immediate target of 9,055. Only a close below the recent swing low of 7,950 would be a cause of concern.

The overheated long term breadth indicator is a slight discomforting factor, but price can still progress higher while this indicator is in the overbought territory. There have been instances where the price has continued to march higher while the long-term breadth indicator was at elevated levels.

So, there is no reason to abandon your SIPs in mid or small cap-oriented funds. If you plan to take fresh exposures in the stocks from this space, be a bit cautious and take limited exposures owing to overbought breadth. As always have a clearly defined exit plan and more importantly stick to that plan.

Our earlier Nifty technical analysis article

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

More like this

Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail contact@primeinvestor.in.  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

6 thoughts on “Technical outlook: Is there steam left in mid-and-small caps?”

  1. Thanks for the analysis which has crossed the levels indicated with in 3 weeks of this note. Pks update and tell us what next from a technical perspective.

    1. B Krishnakumar

      Hello:
      Markets have been in a strong uptrend and has achieved the mid-small cap target. We will soon do an update on Nifty 50 & small cap index. Expect something next week.

      Regards

      B.Krishnakumar

  2. rakeshambudkar

    Sir, Thanks for the analysis. 1) What is the safe level of the Breath Indicator (say something like 50%) to enter apart from other analysis. I understand, we cannot just depend on the indicator for the entry. 2) Is this breath oscillator based on candlestick or point and figure 3) Once we have finalized at the Indices level, can we get breath indicator at stock levels in this indices

    Thanks once again for your valuable insights.

    1. B Krishnakumar

      Hello:
      The breadth indicator is considered overbought if it is above 75% and oversold below 25%. Any reading between these two extremes would be considered as Neutral. Ideal scenario to invest would be when the breadth is in Neutral zone. Of course, the trend in the index concerned should also be borne in mind.

      The breadth indicator is calculated based on the candlestick chart. This breadth indicator can be calculated in the web version of the TradePoint software. Am sure there could be other sources too. But I am not aware of any other source to calculate this indicator. If you have stock data and Amibroker softwarre, then this calculation should be possible.

      Regards

      B.Krishnakumar

  3. Thanks for the analysis. Is there any specific mutual fund covering this Index MidSmallCap 400? It would be useful to get this info

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

The essence of PrimeInvestor

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

Legal Disclaimer : PrimeInvestor Financial Research Pvt Ltd (with brand name PrimeInvestor) is an independent research entity offering research services on personal finance products to customers. We are a SEBI registered Research Analyst (Registration: INH200008653). The content and reports generated by the entity does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information are provided on an ‘as is’ basis by PrimeInvestor Financial Research Pvt Ltd. Information herein is believed to be reliable but PrimeInvestor Financial Research Pvt Ltd does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PrimeInvestor Financial Research Pvt Ltd are on a best-effort basis. PrimeInvestor Financial Research Pvt Ltd does not assure or guarantee the user any minimum or fixed returns. PrimeInvestor Financial Research Pvt Ltd or any of its officers, directors, partners, employees, agents, subsidiaries, affiliates or business associates will not liable for any losses, cost of damage incurred consequent upon relying on investment information, research opinions or advice or any other material/information whatsoever on the web site, reports, mails or notifications issued by PrimeInvestor Financial Research Pvt Ltd or any other agency appointed/authorised by PrimeInvestor Financial Research Pvt Ltd. Use of the above-said information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this website, blog, and investment solutions are and shall remain with PrimeInvestor Financial Research Pvt Ltd. All material made available is meant for the user’s personal use and such user shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. PrimeInvestor Financial Research Pvt Ltd, or any of its officers, directors, employees, or subsidiaries have not received any compensation/ benefits whether monetary or in kind, from the AMC, company, government, bank or any other product manufacturer or third party, whose products are the subject of its research or investment information. The performance data quoted represents past performance and does not guarantee future results. Investing in financial products involves risk. Investments are subject to market risk. Please read all related documents carefully. As a condition to accessing the content and website of PrimeInvestor Financial Research Pvt Ltd, you agree to our Terms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially the USA, Canada or the European Union countries, where such use or access is unlawful or which may subject PrimeInvestor Financial Research Pvt Ltd or its affiliates to any registration or licensing requirement.

Aditya Birla Mutual FundAxis Mutual Fund Baroda Mutual FundBNP Paribas Mutual FundBOI AXA Mutual FundsCanara Robeco Mutual FundDSP Mutual Fund Edelweiss Mutual FundEssel Mutual FundFranklin Templeton Mutual FundHDFC Mutual FundHSBC Mutual FundICICI Mutual FundIDBI Mutual FundIDFC Mutual FundIIFL Mutual FundIndiabulls Mutual FundInvesco Mutual FundITI Mutual FundKotak Mahindra Mutual FundL&T Mutual FundLIC Mutual FundMahindra Mutual FundMirae Asset Mutual FundMotilal Oswal Mutual FundNippon India Mutual FundPGIM Mutual FundPPFAS Mutual FundPrincipal Mutual FundQuant Mutual FundQuantum Mutual FundSahara Mutual FundSBI Mutual FundShriram Mutual FundSundaram Mutual FundTata Mutual FundsTaurus Mutual FundsUnion Mutual FundsUTI Mutual FundsYes Mutual Funds

Equity: Large Cap Funds | Mip Cap Funds | Large And Mid Cap Funds | Small Cap Mutual Funds | Contra Mutual Funds | Dividend Yield | Focused Mutual Funds | Find Top Index Funds | Best Sector Funds | Thematic Mutual Fund | Best Value Mutual Funds | Equity Linked Savings Scheme | Tax Saving Funds
Debt: Banking And PSU Funds | Corporate Bond Funds | Credit Risk Funds Mutual Funds | Dynamic Bond Funds | Floating Rate Funds | Gilt Mutual Funds India | Find Top Liquid Funds In India | Long term debt funds | Low Duration Funds Debt Funds | Medium Duration Debt Funds | Medium To Long Duration Funds | Money Market Debt Funds | Overnight Debt Funds | Short Duration Debt Funds | Ultra Short Term Debt Fund
Hybrid: Aggressive Hybrid Funds | Arbitrage Mutual Funds | Balanced Advantage Mutual Funds | Conservative Hybrid Funds | Dynamic Asset Allocation | Equity Saving Funds | Multi Asset Funds | Multi Asset Allocation

Mutual fund rolling returns by category: Balanced Advantage | Conservative Hybrid Fund | Corporate Bond | Dividend Yield | Dynamic Bond | Equity Linked Savings Scheme | Floating Rate | Index Funds | Large and Midcap fund | Large Cap Fund | Liquid funds | Low Duration | Mid Cap Fund | Multi Cap Fund | Short Duration | Small cap Fund | Solution Oriented – Childrens Fund | Ultra Short Duration

Login to your account
OR