Mid-cap index gives provisional bottom fishing, be cautious on entry

After 2017, the investors have been blaming mid-caps and small-caps for their portfolio deterioration. Broader indices witnessed profit booking ahead of Union Budget and distribution post the budget tanked further due to panic selling amid offloading by almost all MF houses and SEBI’s additional surveillance measures. So much so that many stocks hit below their 52-week low levels. Meanwhile, the Mid-cap index was seen giving lower tops and lower bottoms since the retreat from its peak on January 9, which was prior to the reversal in benchmark indices.

Considering the broader time frame, for instance, the monthly time frame, Mid-cap index has bounced back from near the 50 per cent retracement of the prior upward rally from December 2016 low at 11,448 to its peak 18,321. Meanwhile, the index has also taken 21-period EMA support in the current month, provided the index sustains above 14885-15000.

Meanwhile, considering the daily time frame, the index consolidated for 4 trading sessions near 15,000, and bounced back before it could hit its 52-week low at 14,484. On Tuesday, the index registered its third consecutive uptick where the prices and oscillators have seen a positive divergence.

Reviving domestic macros and Q1 corporate earnings might have acted as paragons offsetting the Rupee depreciation and subdued international cues of Crude oil price hike, trade war and FII sell-off. Mid-cap index is said to have bottomed out, may be provisional. Going forward, 15750-15790 will act as major resistance above which the index would give bottoming out signal. On a broader basis, 17030-17060 will act as trend reversal.

Yet, investors are requested to remain cautious while selecting stocks. Fundamentally good but beaten-down stocks can be used for averaging, while the ones still falling need not be touched for now. Large caps still look attractive for safe betting, while mid-caps and small-caps for averaging or fresh buying.