Will Midcap Stocks Measure Up?

Every trader and investor has heard of the large cap, blue chip stocks of the Dow. And most are at least familiar with the smaller stocks of the Russell 2000. But what about the stocks in the middle? The ones that are two small to be blue chips, but too big to fit in the small cap world of the Russell 2000?

Meet the Midcap 400. This index includes stocks with market capitalizations bewteen $1 billion and $4.4 billion, and includes many of the most popular growth stocks like Panera Bread Company (PNRA) and Deckers Outdoor Corporation (DECK). Most of the stocks in the midcap 400 are finanacials, though sectors like information technology and industrials are also well-represented.

Traders and active investors can track the performance of midcap stocks as a group by way of ETFs like MVV, the ProShares Ultra Midcap 400 Index Fund ETF (MVV). MVV has been moving lower in recent days, weighed down by selling in stocks like Collective Brands Inc. (PSS) and Chico’s FAS Inc. (CHS), both down more than 14% on Tuesday.

In fact, shares of the ProShares Ultra Midcap 400 Index Fund ETF (MVV) have closed lower for a fifth day in a row ahead of trading on Wednesday. This selling has helped the fund finish in oversold territory for the past two consecutive sessions, and earn positive, short term edges of well over 3%.

MVV has not traded in oversold territory since early October, shortly before a rally that saw the fund gain more than 40% over the next month. The current correction in the fund comes as the ETF retreats from those highs from late October, setting new, short term closing lows as recently as Tuesday’s finish.

Among the few Midcap 400 stocks that have pulled back in bull market territory are Tibco Software (TIBX) and Oceaneering International (OII). Shares of TIBX have closed lower for five days in a row, the last three in oversold territory. Down four in a row are shares of Oceaneering International. The stock is newly oversold after losing more than 1% in a pullback on Tuesday.

Traders looking for non-leveraged ways to track and trade midcap stocks may want to consider ETFs like the SPDRs S&P Midcap Trust Series ETF (MDY) and the iShares S&P MidCap 400 Index Fund ETF (IJH). Both exchange-traded funds track the S&P 400 MidCap Index, on a one-to-one basis. Inverse options for the midcap group include the ProShares UltraShort Midcap 400 Index Fund ETF (MZZ).

Quantified data and research on ETFs like MVV is available each evening after the market close. To learn more, click here.

David Penn is Editor in Chief of TradingMarkets.com