Mid-Cap Stocks The Latest To Break Support?
Like their small-cap counterparts, mid-cap stocks have broken through a potentially important support level.
We’ve mentioned quite a bit lately about how well the major stock averages have held up despite, according to our work, a significant deterioration in the market’s internals. That resiliency has begun to show signs of wavering, however, beginning yesterday with the small-caps. Today, we see the mid-cap stocks following their smaller counterparts in breaking key lines of support. Specifically, the S&P 400 Mid-Cap Index (MID) broke through 2 trendlines that had been holding up the average.
The first is the post-2009 Up trendline that supported the MID on multiple occasions before it broke early this year. The index would recover the trendline by April and it would resume its support role. The other trendline we’ve been watching is the post-2015 Down trendline connecting the June 2015 and June 2016 highs. It was this line of resistance that the MID broke through in July en route to a new all-time high. As it goes, resistance often turns into support once broken. As such, this broken Down trendline served as support during pullbacks in September and earlier this month.
That is no longer the case as of yesterday, as the Mid-Cap index broke through both the aforementioned Up and Down trendlines. Here is the wide angle view of this development:
And, closer up:
Price is truth, as they say. However, the recent deteriorating internal conditions have suggested that the resilience among the major price averages isn’t completely “honest”. We are beginning to see the whole truth potentially come out here as index prices are finally breaking down, first with the small-caps then the mid-caps. Of course, just as the indices’ resilience deceived many market observers into thinking all was well, this breakdown must be monitored to insure its “truthfullness”. Reversals often occur following apparent “breakdowns” or “breakouts”, especially in recent years.
However, at present, the internal deterioration and now the price breakdown put the ball in the bears’ court.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
