MidCaps Are At Huge Levels

It’s not just about the Dow and the S&P500 ladies and gentlemen. Let’s not ignore the legend that is the S&P MidCap 400 Index. Until just a few weeks ago, MidCaps were the best performers year-to-date of all of the major US averages. Through most of May, the MidCap 400 was still outperforming the Dow Jones Industrial Average, Nasdaq100, S&P Small-Cap 600 and the Russell2000. But now we’ve arrived at some critical levels.

We’ll use the $MDY – SPDR MidCap 400 ETF just to keep things simple. Here’s what I see: all throughout April and early May this 209-210 level was major resistance. We saw various tests which showed us huge evidence of overhead supply. Once that supply dried up, midcaps rallied a cool 6% in 3 weeks. That’s a big move:

6-13-13 mdy

Now, all in theory of course, former resistance should become support on the way down. Last week, this polarity proved itself to be valid as the buyers showed up nicely. But this week, we’re down here again. Will the buyers show up once more?

Here’s the problematic development that I see. When midcaps broke out to make new highs last month, the relative strength index never confirmed. We saw lower highs in RSI without any overbought conditions as prices went on to make new highs. We don’t like that very much.

So I would say that any break below those key lows and it would probably make sense to short against it. But for now, as long as prices remain above those 209-210, we need to give the bulls the benefit of the doubt. This looks like a big battle ground area from where I’m sitting. Take a look at the $MID Index itself and you’ll see the same thing.

The resolution here should be an important one. Stay tuned…