Small cap stocks will rule 2026, this analyst says

Paradigm Capital analyst Aazan Habib said Canadian small-cap equities are nearing a major technical inflection point, with relative strength versus large caps testing levels that have historically marked long-term trend reversals.

In his Jan. 19 analysis, Habib said the ratio of the TSX Small Cap Index to the TSX Composite is pressing against a resistance zone that aligns with the 2021 relative peak and the 2008 trough. A sustained breakout, he said, would signal a new primary trend of small-cap leadership, potentially reversing more than two decades of large-cap dominance in Canada.

Habib said the setup is notable for its breadth, with momentum improving across commodities, infrastructure, clean energy, and technology-enabled industrials. He added that long-term momentum indicators are aligning in a way typically seen ahead of durable leadership shifts rather than short-lived rotations.

Within that framework, Habib pointed to Champion Iron, noting that the stock’s earnings gap-up in late October 2025 helped reset its momentum and trend structure. That move was confirmed by a monthly close above the VWAP from the 2024 highs near $5.20, with next resistance around $7.50 and potential toward $12.00 on a breakout from the five-year range. Champion’s Street consensus target is about $6.60.

Habib also highlighted Black Diamond Group, which confirmed a new primary uptrend in November 2023 after recapturing the VWAP from the 2014 highs. Following a corrective phase from November 2024 to July 2025, the stock has returned to a positive momentum configuration, with upside potential back toward prior cycle highs. Black Diamond’s consensus target is approximately $18.33.

In the clean-energy and waste-to-value space, Habib cited Anaergia, which broke out of a multi-year base in August 2025 following a sharp earnings-driven move of more than 100%. He said the stock has since consolidated to digest those gains and now appears to be completing a continuation pattern, creating what he views as an actionable entry point. Anaergia’s consensus target stands at $5.13.

Habib said grid modernization is another area where small caps are gaining traction, pointing to Tantalus Systems. He said the stock broke out of its IPO base last summer and has reached its first significant technical target near $5.00. Given its quant profile and chart structure, he sees scope for the uptrend to extend toward the $8.00–$9.00 zone on a Fibonacci extension. Tantalus carries a consensus target of about $5.67.

On the security and infrastructure side, Habib discussed Zedcor, noting that a January shakeout to the rising 200-day moving average followed by a sharp rebound reinforces its leadership characteristics. He said the stock appears to be forming a multi-month continuation pattern within its broader uptrend, creating an attractive accumulation zone. Zedcor’s consensus target is near $7.76.

Habib said these names collectively underscore a broadening of leadership within the Canadian small-cap universe, strengthening the case that a relative-strength breakout would represent a regime shift rather than a transient trade. While confirmation is still required, he said the alignment of long-term charts, improving fundamentals, and factor momentum suggests Canadian small caps are “verging on a breakout,” with meaningful implications for portfolio construction if leadership rotates away from large caps.

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