Mid-Cap Outperformance Set To Accelerate

JC Parets
June 17, 2020

Last week we wrote about the trend change that's potentially underway between the Large-Cap Nifty 50 and the Small-Cap 100 Indexes.

Today, we want to follow up on a trend that we discussed during May's Members-Only Conference Call...Mid-Cap stock outperformance.

Let's just into it.

Here's the Nifty 100 vs Nifty Mid-Cap 100 ratio confirming a failed breakout above resistance as momentum diverges negatively. When this ratio is falling, that means the Large-Cap Nifty 100 is underperforming the Mid-Cap Index. We think this trend is just getting started and want to be erring on the long side of Mid-Cap stocks, at least on a relative basis.

Click on the chart to enlarge view.

Within this market-cap segment, we want to look for individual stocks showing relative strength. Names like IPCA Labs, which has recently broken out to new all-time highs relative to its Mid-Cap peers.

And on an absolute basis, the stock offers a skewed reward/risk...and more importantly, defined risk. We only want to be buying the stock above 1,730, with a target up near 2,550. Below that, there's too much opportunity cost and downside risk in owning it. Let the stock re-accelerate its uptrend before we get involved again.

Other names that look compelling are those like Tata Consumer Products, which have recently broken out to new all-time highs relative to the Mid-Cap 100, but are now pulling back towards support and consolidating gains. We want to be watching stocks like this for an entry on the long side.

After 2.5 years of underperformance, the tide appears to be turning for Mid and Small-Cap stocks. Needless to say, if this is the turn we've all been waiting for then there will be plenty of opportunity in these market-cap segments for many months and quarters to come.

We'll be discussing this theme and many others during our Members-Only Conference Call this Thursday, June 18th, at 7PM IST.

We hope to see you there, but if you can't make it live you can watch always the archived version at your leisure.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team

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