Mid and Smallcap Indices in India are retesting their 2018 lows, leaving many wondering we’re due for a new set of lows just 2 months into 2019.
The Nifty Free Float Midcap 100 is testing a critical support level this week around 16,030, as prices continue to trend lower below a downward-sloping 200-day moving average.
The weakness in everything except Largecaps continues (though even the Nifty Next 50 has come under pressure), but we’re now at a level where it makes sense to be covering shorts and looking at the long side once again.
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While momentum is diverging positively and prices are holding above the 2018 lows for now, the internals of the market continue to deteriorate, suggesting that any bounce will be short lived and counter-trend in nature.
One simple way we look at breadth is by measuring the number of uptrends, sideways trends, and downtrends in our chartbooks.
Below are four months worth of stats from our Midcap workbook which covers the roughly 50 Midcap stocks that are shortable through options or futures. As we can see, the number of downtrends fell slightly as prices mean reverted, but are now right back to where they were when prices were at their ’18 lows.
The problem is they simply shifted into sideways consolidations which are now resolving lower in the direction of their long-term trend. If most of the stocks we’re looking at are in downward or sideways trends, it’s no surprise that the index itself is struggling. The Smallcap workbook looks similar, and we all know how well that market-cap segment has fared…
In healthy markets we see the number of uptrends expanding, not staying flat or declining. While an obvious statement, it’s easy to lose that fact in all of the noise, which is why we look at the entire Nifty 500 every week on multiple timeframes. Want to know what stocks are doing? Look at them.
This is a “market of stocks” after all, and it remains guilty at the major index level until we start to see an expansion in the number of its uptrending components.
Today is our Members-Only Conference Call where we’ll be discussing the most important charts from this weekend’s chartbook updates and all around the world . We’ll be covering a lot of topics, but you can be sure that Mid and Smallcap weakness will be front and center once again.
Hope you can join us.
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