[Free Chart of The Week] The Tale of Two Markets

The chart that provides great perspective on this is a monthly chart of the Nifty 50 overlayed with the Nifty Free Float Smallcap 100.

Click on chart to enlarge view.

If you're looking at only the Large-Cap index, you'd think that India is in great shape and consolidating gains through time. However, if you move down the market-cap scale you see continued weakness in Mid and Small-Cap names.

Since early 2018 this divergence has grown, but history tells us that the disconnect cannot hold over the long-term. These indexes tend to bottom and top together, so this will have to resolve itself one way or another.

How and when are two entirely different questions.

We look at thousands of charts every week on multiple timeframes to identify clues as to which way this divergence will resolve itself. Right now the evidence remains mixed, but as we've written here and here, the key will be for the four major sectors to all begin trending in the same direction.

Until that happens, our focus remains on owning the strongest stocks in the strongest areas of the market, and shorting or avoiding the weakest. We're also taking advantage of trends in other asset classes, like the structural breakouts in Gold and Silver.

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Allstarcharts Team