Analysts said technical indicators are pointing to further weakness. The Nifty Midcap 150 index dropped 2.7%, the Smallcap 250 index fell 3.8% and Microcap 250 plunged 5.1% on Monday. If the Nifty Smallcap 100 index is unable to hold above a key support of 12,200, it could decline to the 11,400 range. The index closed at 12,463 on Monday. ET asked three technical analysts what’s in store for smaller shares in the days ahead.
DHARMESH SHAH
HEAD-TECHNICALS, ICICI SECURITIES
What is the technical set-up in small-cap shares?
Nifty Smallcap index retreated from a 15-year resistance trend line drawn adjoining 2007-21 high, indicating profi t booking after a 50% rally seen during March-October 2023 amid overbought conditions. In a secular bull market, secondary correction is a common phenomenon wherein the smallcap index tends to correct 12-15% from swing highs.
What is the road ahead?
We believe the current correction would make the broader market healthy, wherein strong support is at 11,400. Thus, the focus should be on accumulating quality stocks backed by strong earnings in a staggered manner.
CHANDAN TAPARIA
ANALYST DERIVATIVES, MOTILAL OSWAL FINANCIAL SERVICES
What is the technical set-up in small-cap shares?
Though the Nifty Smallcap 100 index corrected by more than 3.5% on Monday, it respected its 50-day exponential moving average (EMA) on the daily chart for the last 135 trading sessions, which was retested on the last trading session.
What is the road ahead?
Three technical indicators are pointing to weakness in small-caps. One, RSI witnessed divergence with price, which indicates a pause in positive momentum, and some profi t bookings cannot be ruled out. Two, it formed a bearish candle on a weekly scale, followed by a Doji candle, which indicates bulls may go one step back before they start the next move. Three, it formed a double-top kind of formation on the daily chart by heading towards 50-DEMA along with bearish divergence on a daily scale with the price indicating a further corrective move of 5-7%.
RAJESH PALVIYA
HEAD TECHNICAL DERIVATIVES, AXIS SECURITIES
What is the technical set-up in small-cap shares?
A look at the monthly chart of Nifty Smallcap shows the index saw a fi rm bullish formation after rallying from 9,000 to 13,000 in the last six months, which is augmented with increased volumes. This indicates any signifi cant dip or consolidation can be used as an opportunity to buy fundamentally cheap stocks and add to the portfolio from a longterm perspective with 11,500 being the major reversal level.
What is the road ahead?
Nifty Smallcap witnessed a strong sell-off on September 12. However, after making a low of 12,300 the next day, it reclaimed the 13,100 mark in the current month. Hence, on daily chart, the important supports are at 12,300 and 12,100. If the index fails to sustain above them, we may see it heading towards 11,500- 11,600. If it manages to break above resistance of 12,800 and 13,100, the uptrend will resume.