Midcaps and Smallcaps all set to rally

From 2018, Midcap and Smallcap stocks had underperformed a lot in Indian Market. Many midcaps and smallcaps like DHFL, Vakrangee, PCJ, Infibeam, Jet Airways, etc had been wealth destroyer for investors during that period.

From 2018-present performance of Indices had been: Nifty up by 22.8% whereas Nifty Midcap down by 8.3% and Nifty Smallcap down by 30% Generally market moves in cycle and longer term returns of all indices match with that of Benchmark Index: Nifty or Sensex. If a sector or indices outperform or underperform a lot then in future it will tend to underperform or outperform to match the returns. So currently Nifty is outperforming and its expected that it will perform lesser than midcap or smallcap indices. Note: Underperformance doesn't mean it will crash and outperformance doesn't mean it will hit upper circuit. Now lets look into Midcap and Smallcap charts and compare it with Nifty: Nifty Midcap/Nifty Chart: This is the ratio chart and it divides Nifty Midcap with Nifty and plot the chart for the same.

Currently the line chart is at resistance zone and breaking the resistance means Nifty Midcap is more stronger than Nifty and we can see good rally in Nifty Midcap. Normal weekly line chart of Nifty Midcap chart and understand its demand and supply.

Nifty Midcap is trading near crucial and psychological resistance zone of 20000 and then next resistance would be at all time high 21700. Spread charts is very positive and this resistance region might be taken off in next few months. Nifty Smallcap/Nifty Chart Spread Chart

The chart is trying to form Inverse Head and Shoulder reversal pattern which is a bullish sign. Normal weekly line chart of Nifty Smallcap chart and understand its technical pattern.

Smallcap index consolidated for some time before giving breakout above trendline. Generally the target seen is 9275 and time horizon is 10 months. This breakout will fail if it gives weekly close below 5550. Details about Spread Chart and why one should use it? Spread chart is a effective way of understanding a trend in stock or index with respect to broader market which is benchmark indices. If our stocks or index gives breakout that means it is a more stronger than broader market and it can give good returns in next few months. One example of breakout in spread chart was in BankNifty and that was shared on 5th Nov 2020 on Twitter: BankNifty Breakout

From 5th Nov till present BankNifty had moved from 26313 to 29609 almost up by 12.5% in 15 trading session. Follow on Twitter: Yash Mehta