Small Cap Outperforms: Is It Out of the Woods After a Strong Rebound?

On November 26, 2024, the Nifty Small-Cap Index surged by 0.80%, outperforming the Nifty50, which declined by 0.15%. This rally marked a recovery of over 900 points from its November 18 lows, helping the index reclaim its 20-day moving average (20-DMA), which it had breached earlier this month.

Recent Trends: From Declines to a Potential Reversal

The small-cap index had been in a downtrend since September, forming a sequence of lower highs and lower lows. However, recent movements indicate a shift:

• Key Support: The index found support at its long-term 200-day moving average (200-DMA) and the June 2024 gap area.
• Short-Term Recovery: The reclaiming of the 20-DMA signals renewed strength.

Technical Indicators: Signs of Recovery

1. MACD Crossover:
   The daily MACD has given a positive crossover, with the MACD line moving above the signal line. This indicates potential bullish momentum.
2. RSI Breakout:
   The Relative Strength Index (RSI) has moved above the 9-EMA, further confirming the possibility of a trend reversal.
3. Weekly Chart Reversal:
   While a final confirmation awaits the weekly close, the index is trading significantly above last week’s high, suggesting the formation of a reversal candle.

What’s Next: Out of the Woods Yet?

Although the recovery looks promising, a key hurdle remains. The index must surpass its previous swing high of 19,301.90, recorded in November, to fully invalidate the sequence of lower highs and lower lows. Until then, caution is advised.

Medium-Term Outlook: Key Levels to Watch

• Support Level: The 200-DMA is expected to act as strong medium-term support.
• Resistance Level: The swing high of 19,301.90 is the next significant resistance for the index to breach.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.