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. The 200-DMA is considered important as it is one of the basic technical indicators that can be used to determine the long-term trend of security. Almost 30 per cent of the stocks that constitute Nifty 50-the equity benchmark index are trading above their 200-DMAs while 70 per cent of the stocks are trading below their 200-DMAs. In the last five trading sessions, Nifty index has gained almost 275.70 points or 2.64 per cent. Despite that, the ratio of stocks trading above/below its 200-DMA remains unchanged on a WoW comparison basis. On June 24, 2020, the index has marked a high of 10,553.15, and during that time, the ratio of stock trading above/below 200-DMA stood at 32:68, where 32 per cent stocks were trading above their 200-DMA and 68 per cent stocks were trading below their 200-DMA.
However, on July 08, 2020, the index has marked a fresh four-month high of 10,847.85 and this time, the ratio is 30:70. It clearly suggests that along with the recent upmove, that started from the low of June 25, 2020 in the benchmark index Nifty, the ratio has not improved. Ideally when the index is rising, we like to see this price-performance confirmed by a rise in the number of stocks that are moving above their 200DMA. This implies the health of the market because a rise in the number of stocks moving above their 200-DMA means that more individual stocks are participating in the broad markets rally. However, for the next leg of upmove, the ratio needs to improve otherwise short-term throwback cannot be ruled out.
Sectoral Sentiment Indicator : This indicator basically interprets the number of stocks in the sectoral indices, trading above/below their 200-day moving averages. This will help us to know which sectors are improving their performance. This week, the market has continued with its winning streak as broad-based buying interest in most of the sectors has helped Nifty to scale a fresh four-month high on Wednesday. To begin with, on a WoW comparison basis, the sectoral index-Nifty Financial Services has seen a substantial improvement as almost 15 per cent stocks have managed to close above their 200-DMAs, followed by Nifty Auto (13.34 per cent). Among the constituents of Nifty IT, Nifty Pharma and Nifty Realty, about 10 per cent of each stock have moved above their 200-DMA. Nifty FMCG and Nifty Metal have seen minor improvement in the stock, as almost 6.66 per cent of each stock has managed to close above their 200-DMA.
On the flip side, not a single sectoral index has seen an addition in stocks that have managed to close below their 200-DMAs. Nifty Bank, Nifty Media, Nifty Private Bank and Nifty PSU Bank indices remain unchanged on a WoW comparison. Among the constituents of Nifty Auto index, last week, the stocks were trading below their 200-DMAs by an average of about 8.32 per cent but in the current week, we have seen an average rebound by 5.02 per cent. With this, on Monday, for the first time since February 17, 2020, Nifty Auto index has managed to close above its 200-DMA but it did not sustain, and on Wednesday, it dipped below its 200-DMA. Nifty IT index is consistently witnessing new addition in stocks, which are trading above their 200-DMAs for the last two weeks. In Nifty IT Index, on a cumulative basis, almost 40 per cent constituents have managed to close above their 200-DMAs in the last two weeks. With this, Nifty IT index has witnessed almost 932.20 points or 6.39 per cent upside in the last two weeks and currently, the index is trading above its 200-DMA by 4.52 per cent.
Indicator To Gauge Internal Strength : This indicator helps us to gauge the internal strength of the market. Among Nifty 500 stocks, a higher number of stocks reaching 52-week highs and the lesser number of stocks hitting 52-week lows represent a bull market while the opposite suggests a bear market. On a WoW comparison, the previous week's average ratio was 6:1 and in the current week, the average ratio is 12:1 where, on average, 12 stocks touched a new 52-week high while on the flip side, one stock hit a new 52-week low.
From June 25 to July 03, the average ratio of stocks making new 52-week high/low stood at 6:1, where the average six stocks had touched 52-week high and one stock had touched 52-week low. However, in the last three trading sessions, we have seen a significant improvement in stocks making new 52-week high as the average ratio of the last three trading sessions stood at 14:1. This clearly suggests that the internal strength of the market has improved significantly in the last three trading sessions. Going ahead, it will be interesting to watch the behaviour of index as it is currently hovering around its crucial 200-DMA.
(Closing price as of July 8, 2020)