Is it a Top in Place on the Small Cap Index?
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Small Cap Index has experienced a remarkable rally in 2023, achieving a significant gain of over 30%. However, this surge has prompted investors to question whether this represents a market top. Recent profit-taking activity has pushed the index down by more than 5% from its peak of 13,148. This report aims to assess whether the Small Cap Index has reached its peak and to provide insights into its current status.
At the outset of this week, the market witnessed broad-based selling, leading to concerns among traders and investors about the possibility of a market top. It is crucial to evaluate whether this recent downturn is indicative of a more significant trend reversal.
Small Cap Index currently stands above a crucial support zone from 11,600 to 12,000. While recent events may have caused anxiety, it is essential to consider the index's position within this range. As long as the index maintains its position above this support zone, it is more likely to experience a time correction rather than a significant price correction.
Despite short-term fluctuations, there is reason to remain optimistic about the Small Cap Index's performance. The potential for the index to reach levels of 16,000 by the second quarter of 2024 remains a plausible scenario.
On a technical note, the Sine Wave on the weekly chart indicates a bullish scenario. This suggests that the recent dip to 12,000 can be viewed as an opportunity for investors to accumulate shares of small-cap stocks that are outperforming the market or those with strong fundamentals.
One of the red flags that has caught the attention of market participants is the overbought Relative Strength Index (RSI). It is essential to acknowledge that the RSI appears stretched now. However, it is crucial to emphasize that a possibility exists for a time correction rather than a significant price correction. This could bring the RSI back within the 50-60 range in the coming weeks, thereby reducing concerns about overbought conditions.
While it may be premature to declare that the Small Cap Index has reached its peak at the current market price of 12,500, a cautious approach is advisable. Instead of calling a top, it may be prudent to consider buying opportunities on dips to 12,000, given the index's strong position within the 11,600-12,000 support zone. Traders and investors should closely monitor the market, considering the potential for a time correction and the bullish signals from the Sine Wave, which could support further upside potential in the small-cap segment.
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@Brijesh-Bhatia Great insights sir
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@Prasiddh Shroff Thanks a lot Prasiddh Sir.
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Super insights Birju.. I personally feel whole India index at 3 Trillion is a small cap.
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I will add more to the insight:
Here is the list of small-cap companies that qualify for the following parameters, which can be kept an eye on since they have posted good quarterly numbers and are also trading within 15% of 52week high as of Oct 24
Market Cap < 8000 AND
Market Cap > 250 AND
Quarterly Net Profit Growth YoY > 15 AND
Quarterly Sales Growth YoY > 15 AND
Quarterly OPM > OPM 4Qtr Back AND
Price Within Fifty Two Week High < 85
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@Satish Vijaykumar Thanks Satish
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As always insightful analysis
