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 longterm trend of security. Almost 94 per cent of the stocks that constitute Nifty 50-the equity benchmark index are trading above their 200-DMAs while only 6 per cent of the stocks are trading below their 200-DMA. On a WoW comparison basis, we observed that 6 per cent of the stocks have managed to close below their 200-DMAs. On Wednesday, the index bellwether, Reliance Industries slipped below its 200-DMA for the first time since April 22, 2020. Along with Reliance Industries, Coal India & NTPC have also tumbled below its crucial 200- DMA level.

From the high of 14,753.55, which was registered on January 21, 2021, Nifty index has fallen by 786.05 points or 5.32 per cent. This downward move was not only quantitative in nature but also qualitative as almost 6 per cent of the stocks have slipped below its 200-DMA. In addition to this, considering the close of January 21, the stocks of Nifty index, on average are trading above its 200-DMA by nearly 22.40 per cent, and currently, on average, they are trading above its 200-DMA by 18.28 per cent. This clearly indicates that in the current week, overheated counters are reverted to their mean. However, the recent fall has created a sense of nervousness in the market, but the indicator structure has not changed much, as almost 94 per cent of the components of Nifty are still trading above their 200-DMA. Going ahead, the outcome of the Union Budget could be a fresh trigger point for the market direction.

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 Financial Services, Nifty FMCG, and Nifty IT indices, all the stocks are trading above their 200-DMA. The Indian market has witnessed a sell-off after registering an all-time high last Thursday. This is visible in the sectoral sentiment indicator as almost five sectoral indices have witnessed an addition in stocks and managed to close below their 200- DMAs. On a WoW comparison basis, the sectoral index, Nifty Media has seen a substantial decline as 22.22 per cent of the stocks have managed to close below their 200-DMAs, followed by Nifty Metal by 13.33 per cent.

Among the constituents of Nifty Pharma and Nifty Private Bank, almost 10 per cent of each stock have slipped below their crucial 200-DMA. For the first time in the last 12 weeks, Nifty Pharma index has seen a decline in the stocks that are trading above their 200-DMA. Nifty Bank index has seen a minor decline in the stocks trading above their 200-DMA as over 8 per cent of the stocks have plunged below their 200-DMA. Last week, on an average, the stocks of Nifty Bank index are trading above their 200-DMA by 40.76 per cent but in the current week, the average difference between the 200-DMA and close of the stock is narrowed by 14.14 per cent. This indicates that some overheated counters from Nifty Bank index are reverted to their mean. Nifty Metal is consistently witnessing a new addition in the stocks, which are trading below their 200-DMAs since the last two weeks. In Nifty Metal Index, on a cumulative basis, nearly 20 per cent of the constituents have managed to close below their 200-DMAs in the last two weeks.

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 new 52-week highs while on the flip side, not a single stock has hit a new 52-week low. In the previous article, we had cautioned our readers about the weakening of the internal strength of the market. The forecast has been proven true as from the high of 12,167.95, Nifty 500 index has plunged 621.60 points or 5.10 per cent.

For the majority part of the month of January, the bulls were in a complete control as Nifty 500 index has recorded a fresh all-time high of 12,167.95 on January 21, 2021. However, if you look at the chart, the internal strength of the market had started weakening on January 12, 2021, which is confirmed by the price in last four trading sessions. From January 01 to January 11, on an average, 69 stocks have marked 52-week high from Nifty 500 space. While from January 12 to January 27, on average, only 31 stocks have marked a new 52-week high. Going ahead, Nifty 500 index has closed below its 20-day EMA level for the second consecutive day for the first time since November 2020 and the weakness in the price has been further confirmed by a substantial decline in the number of stocks marking a new 52-week high. Hence, the bears may continue to dominate ahead of a major event of the Union Budget. Further, deterioration in the stocks marking new 52-week high would raise the risk of a more meaningful correction.

*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 27, 2021)