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. For the last 22 trading sessions, all the constituents of Nifty index are trading above their 200-DMAs. On a WoW comparison basis, the ratio has remained unchanged. After registering a high of 14,653.35, which was registered on January 13, 2020, the index has witnessed a minor correction of nearly 431 points or 2.93 per cent. However, in the last two trading sessions, the index has retraced the entire downward move, which is started from the high of 14,653.35 to the low of 14,222.80.
On Wednesday, the index has registered fresh all-time high but the indicator did not mirror the strength, which is showed by the index in the last two trading sessions. Considering the close of January 13, the stocks of Nifty index, on average, are trading above its 200-DMA by nearly 23.60 per cent, and currently, on an average, they are trading above its 200-DMA by 22.40 per cent. This clearly indicates that the last two trading sessions’ upward move is led by some selected heavyweight counter. The index bellwether Reliance Industries has gained over 6 per cent in the last three trading sessions. Along with Reliance Industries, TCS has also gained almost 2.33 per cent from the close of January 15, 2021.
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. Currently, all the sectoral indices are trading above their 200-DMAs. Among the constituents of Nifty Auto, Nifty Bank, Nifty Financial Services, Nifty FMCG, Nifty IT, Nifty Media, Nifty Pharma, and Nifty Private Bank index, all the stocks were trading above their 200-DMA. On a WoW comparison basis, the sectoral index Nifty Metal has seen a minor decline as nearly 7 per cent of the stocks have managed to close below their 200-DMAs. In the last five trading sessions, Nifty Metal index has lost nearly 2.5 per cent. Among the constituents of Nifty Metal index in the last five trading sessions, we have seen an average decline of 7.73 per cent. This clearly indicates that some overheated counters from Nifty Metal index are reverting to their mean. Along with Nifty Metal index, Nifty IT index has also seen cool off from the higher levels.
Last week, on average, the stocks of Nifty IT index are trading above their 200-DMA by 52.61 per cent but in the current week, the average difference between 200-DMA and the close of the stock is narrowed by 6.77 per cent. This indicates some overheated counters are reverting to their mean. Nifty Pharma index is losing its shine since the last seven trading sessions as the index lost almost 4.41 per cent from the high of January 12, 2021. Among the constituents of Nifty Pharma index, on January 12, 2021, the average difference between their 200-DMA and close of stocks was 20.14 per cent and currently, it is narrowed by 4.50 per cent. Currently, Nifty Pharma index is trading above its 200- DMA by 16.49 per cent. Going ahead, the current structure of Nifty Auto index is looking interesting as the momentum is tilted in the favour of the bulls.
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 basis, the previous week's average ratio was 67:0 and in the current week, the average ratio is 25:0 where, on an average, 25 stocks touched a new 52-week high while on the flip side, not a single stock has hit a new 52-week low. In line with our expectations, Nifty 500 index has witnessed a minor correction from the high of 12,133.40, which was registered on January 13, 2021.
Along with this correction, the number of stocks that are making new 52-week highs has also declined substantially by nearly 63 per cent as compared to the prior week. In the current week, the average number of stocks making new 52-week high was the lowest since December 2020. Further, on Wednesday, Nifty 500 index has logged fresh closing high but only 34 stocks have marked new 52-week highs. These factors might be giving some suspicious vibes about the continuity of the upward rally in the markets but it does not mean that we should go ahead and short the markets blindly as it needs to be confirmed by price.
*LEGEND: DMA - Daily Moving Average. MACD - Moving Average Convergence Divergence RMI - Relative Momentum Index ROC - Rate of Change RSI - Relative Strength Index
(Closing price as of Jan 20, 2021)