Key indicator hinting at strength in midcap stocks

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Key indicator hinting at strength in midcap stocks


Mumbai: A key technical indicator is pointing to a bullish outlook for mid-cap stocks. The Nifty Midcap 100 index formed the golden crossover pattern for the first time in the last seven years, a situation that has opened up the possibility for sharp gains for these stocks in the coming months.

The golden cross appears on a chart when a stock’s short-term moving average crosses above its long-term moving average. Historically since the advent of Nifty Midcap 100 in January 2001, the index has seen a golden crossover on weekly charts only on two instances. The first time was in January 2010 and the second time in May 2014.

After the crossover of 50-day weighted moving average (WMA) to 200-day WMA in January 2010, Nifty Midcap 100 index rallied 32 per cent in 44 weeks. In May 2014, the index surged 42 per cent in the 63 weeks.

“Nifty Midcap 100 has staged a golden crossover. Thus, based on historic data we may see the index resuming its uptrend with key resistance placed at the 26,230 mark,” said Sandeep Porwal, technical analyst, Ashika Stock Broking.

The Nifty Midcap 100 index gained 1.7 per cent to close at 23,609 on Tuesday. The Golden Cross indicates a bull market especially when the pattern accompanied by high trading volumes.

Once the crossover occurs, the long-term moving average is considered as the major support level for the markets.

“The 2014 crossover of the midcap index saw a tremendous move from 10,000 levels to 21,800 plus levels. Currently trading at 23,600 levels, it can easily hit 25,000 levels and outperform the Nifty,” said Chandan Taparia, derivatives and technical analyst at Motilal Oswal Financial Services.

Nifty Midcap 100 has rallied 14 per cent in the past three months, while the benchmark Nifty has gained 6 per cent. In the past six months, the mid-cap index has run up 39 per cent as against the 32 per cent advance in the Nifty.

Though mid-cap and small-cap stocks have rallied in a big way in the last few months, the momentum will continue as there is still value left in them, said analysts.

According to Pankaj Pandey, head of research, ICICI Securities, shallow corrections can happen but structurally midcaps and small-caps are looking particularly attractive given the fact that they have not performed that well. “That is where we will see the maximum earnings surprises and upside potential as well.”

“We estimate that small- and mid-cap space is likely to yield a large number of opportunities over the next few years and would continue to be part of the Indian growth story,” said Sahil Kapoor, chief market strategist, Edelweiss Broking.

“The domestic flows which are more focused on companies outside of the large-cap universe, have been set sellers. These funds are likely to remain buyers of dips in mid and smallcap space.”



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