Sentiment Indicators

200-DMA INDICATOR: This indicator measures the percentage of Nifty 50 stocks that are trading above/below their 200-day simple moving averages (200-DMAs). The 200-DMA is considered as an important and one of the basic technical indicators, which can be used to determine the long-term trend of a security. While 48 per cent stocks are trading above their 200-DMAs, almost 52 per cent stocks of Nifty 50 are currently trading below their 200- DMAs. In the last five trading sessions, Dr. Reddy, HDFC, and UltraTech Cement have closed above their 200-DMAs. On the basis of a Week-on-Week (W-o-W) comparison, we have observed that about 6 per cent of the stocks have closed above their 200-DMAs. With this, the index itself has managed to reclaim its 200-DMA. On September 23rd, the index reached a high of 11694.85. 

At that time, the ratio of stocks trading above/below its 200-DMA stood at 42:58, where 42 per cent stocks were trading above 200-DMA and 58 per cent stocks were below 200-DMA. On Wednesday, the index closed at 11464, which is 230.85 points or 1.97 per cent down from the high of September 23rd. However, the current ratio is still 48:52, with 48 per cent stocks trading above 200-DMA and 52 per cent stocks below 200-DMA, indicting a clear improvement in the ratio. Nonetheless, we are in a sweet spot considering the current structure of indicator and any incremental positive news flow from the domestic or the global market may lead to a further upward momentum in the index. 

Sectoral Sentiment Indicator : This indicator basically interprets the number of stocks in the sectoral indices, trading above/below their 200-day moving averages (200-DMAs). This will help us identify the sectors that are improving their performances. On Wednesday, the Indian equity markets continued their winning streak for the fourth consecutive trading session as the FPIs extended their buying for the fourth day in a row. They bought shares worth Rs. 686.33 Crore in Wednesday's session and the hopes of consumer demand revival in the upcoming festival session has enthused investors. On a W-o-W comparison basis, the sectoral index Nifty Metal has seen a substantial improvement as 13.33 per cent stocks have managed to close above their 200-DMAs, followed by 10 per cent of Nifty Pharma and Nifty Realty, each, and 6.66 per cent of by Nifty FMCG. On the flip side, among the constituents of Nifty IT, almost 10 per cent stocks closed below their 200-DMAs, followed by 6.66 per cent of Nifty Media and Nifty Auto, each. 

The Nifty Bank, Nifty Financial Services, Nifty Private Bank, and the Nifty PSU Bank indices remained unchanged on a W-o-W comparison. Among the constituents of Nifty Metal index, the stocks were trading below their 200-DMAs by an average of about 15.01 per cent last week but, after China’s confirmation on a partial deal with the US, we have seen the average rebound by 2.8 per cent. The majority of the metal stocks have been under-performing the broader market indices due to the ongoing trade war tension. The Nifty PSU Bank index has been consolidating in a range and there was no significant development, i.e. no rise or drop was seen in the ratio since last 12 weeks. However, the Nifty PSU Bank may be an attention-seeker in the coming weeks as contrarian investors may look for an opportunity in this sector since much of the bad news is now factored into stock prices. 

Indicator To Gauge Internal Strength : This indicator helps us to gauge the internal strength of the market. Among the Nifty 500 stocks, the increase in number of stocks, reaching new 52-week highs, and the decrease in stocks, touching new 52-week lows, is a representation of a bullish market, and the vice-versa being true about a bearish market. On a W-o-W comparison, the previous week's ratio was 4:31 and it is 6:34 in the current week, where, 6 stocks touched new 52-week highs while 34 stocks hit new 52-week lows on an average. There are some interesting things going on here. 

Since the last six trading sessions, the Nifty 500 index has witnessed a 292.90 points or an almost 3.25 per cent upward move but the ratio of stock hitting week high/low is still firmly tilted in the favour of the bears. When the index is rising, we like to see this price performance confirmed by a rise in the stocks, creating new 52-week high. This implies a strong participation in the market because a rise in such stocks means more individual stocks participating in the broad markets’ rally. However, we haven’t seen a broad-based participation within the current upward movement, as the index has surged over 3 per cent but the number of stocks registering new 52-week low is also increasing. This creates a divergence, that is, the indicator is moving in the opposite direction to the price, which points towards the participation of only selected stocks in the rally. This kind of divergences has often marked an early sign of market correction but it needs to be confirmed by prices as price is the king.