By Andrew Addison
The S&P MidCap 400 index is preparing for its moment in the sun. My work indicates that the index -- which includes companies with a market cap between $7 billion and $18 billion, such as Aecom, BJ's Wholesale Club Holdings, and Crane -- is beginning to accelerate pricewise and is on the verge of beginning a bull market in relative strength.
The monthly chart above illustrates that the MidCap index is accelerating from what I call a "closing cluster." Closing clusters are when the price of a security closes virtually unchanged for at least two consecutive months. It represents a compression in volatility, which when hurdled produces an accelerated advance. And that accelerated advance has begun this month.
The weekly chart above illustrates that the MidCaps just broke out of a three-year base and high-level consolidation. A high-level consolidation is a trading range that develops at the top of the base and represents a final refueling stop before the security breaks out and accelerates.
Finally, the chart above shows that the MidCaps' relative strength is on the verge of breaking out of a three-year base versus the Value Line Composite Index. (I like to use the Value Line index instead of the S&P 500 because it weights all of its 1,700 stocks equally -- regardless of how large or small its market cap is.) And the MidCaps' relative strength is also on the verge of hurdling a 16-year downtrend. Once relative strength breaks out of its base, then the MidCaps would begin a new bull market in relative strength. Investors can bet on the index via the SPDR S&P MidCap 400 exchange-traded fund (ticker: MDY).
Andrew Addison is the author of The Institutional View, a research service that focuses on technical analysis.
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November 11, 2024 03:00 ET (08:00 GMT)
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