Time for Mid-Cap Stocks to Outperform Broader Market!

Mid-cap stocks have been underperforming large-cap stocks for quite some time. Perhaps, this is a reason for the malaise in the broader market over the past year.

Let’s take a closer look at what’s happening. In the chart below, we look at the performance ratio of mid-cap stocks to large-cap stocks, using the S&P Mid Cap ETF (MDY) and the S&P 500 (SPY).

As you can see, it’s been trading in a longer-term channel and hit upside resistance in late 2016 / early 2017 at (1). And it has been heading lower ever since.

The decline is currently testing 8-year support (2) with momentum levels oversold and potentially creating a higher low. Mid-caps have rallied from these momentum levels in the past (see green markers).