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 74 per cent of the stocks that constitute Nifty 50-the equity benchmark index are trading above their 200-DMAs while 26 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, we observed that 12 per cent of the stocks have slipped below their 200-DMAs. This was the steepest increment in stocks slipping below their 200-DMA in CY2021. In the last five trading sessions, Dr Reddy's Laboratories Ltd, Eicher Motors Ltd, HDFC Bank Ltd, Housing Development Finance Corporation Ltd, Maruti Suzuki India Ltd, and Reliance Industries Ltd have slipped below their 200-DMAs.

For the first time since September 09, 2020, HDFC Bank Ltd has tumbled below its 200-DMA while since October 06, 2020, Housing Development Finance Corporation Ltd slipped below its 200-DMA. On Tuesday, the stock of Dr Reddy's Laboratories Ltd fell more than 10 per cent and tumbled below its 200-DMA after the company declared its Q1 result. On Wednesday, the index had broken the lower range of the consolidation and marked a low of 15,513.45. Along with this downward move, around 10 per cent constituents of the index have slipped below their 200-DMA on Wednesday. However, from the low of 15,513.45, we have seen a recovery of nearly 200 points or 1.20 per cent but apart from this recovery, we have not seen any significant improvement in the stocks moving above their 200-DMA. This clearly indicates that the internal strength of the index has weakened significantly and we may witness a correction in the index.

Sectoral Sentiment Indicator : This indicator basically interprets the number of stocks in the sectoral indices that are 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-DMA. Among the constituents of Nifty IT, Nifty Metal, Nifty PSU Bank and Nifty Realty, all the stocks are trading above their 200-DMA. The last two trading sessions were undoubtedly dominated by the bears and it is clearly reflected in the sectoral sentiment indicator, with the bulk of the components of the sectors having managed to close below their 200-DMAs. To begin with, on a WoW comparison basis, as many as 15 per cent of the stock components of Nifty Financial Services have tumbled below their 200-DMAs, followed by Nifty Auto, where 13.33 per cent constituents slipped below their 200-DMAs.

Among Nifty Pharma and Nifty Private Bank, about 10 per cent of the stock constituents had moved below 200-DMA. Nifty Bank index has seen a minor dip as the stock trading above its 200-DMA fell to 66.66 per cent from 75 per cent last week. Most notably, in the past three weeks, almost 30 per cent of the constituents of Nifty Private Bank have slipped below their 200-DMAs. While, among Nifty Bank and Nifty Financial Services, almost 25 per cent of each constituent of the indices slipped below their 200-DMAs. In the last five trading sessions, Nifty Metal index has outperformed the benchmark indices as it gained nearly 7 per cent and marked a fresh all-time high. Currently, Nifty Metal index is trading above its 200-DMA by 41 per cent, which is a bullish sign. Nifty Pharma index has witnessed a steep fall of nearly 5 per cent in the last two trading sessions. Currently, it is trading above its 200-DMA by 8.27 per cent. Going ahead, the metal sector is likely to outperform the benchmark indices while the banking & financial sector may underperform in the next five trading sessions.

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 of stocks marking a fresh 52-week high/low was 48:0 and in the current week, the average ratio is 43:0 where, on average, 43 stocks touched a new 52-week high. On the other hand, on average, not a single stock has hit a new 52-week low. However, in the last two trading sessions, the stock of Alembic Pharmaceuticals Limited has marked a 52-week low. In the last five trading sessions, Nifty 500 index has gained 83.40 points or 0.61 per cent.

Despite this upward move, we have seen over a 10 per cent decline in stocks marking a 52-week high on a WoW comparison basis. This decline in stocks marking 52-week high is just because the index has witnessed a correction of 332 points or 2.41 per cent in the last two trading sessions. However, in the second half of Wednesday’s trading session, we have seen a smart recovery in the index as from the low of 13,409.10, the index has recovered by 170 points or 1.26 per cent. On MoM comparison basis, we have seen a 10.25 per cent improvement in the stocks marking a new 52-week high despite gaining only 0.78 per cent from month-to-date. During Wednesday’s trading session, the recovery from the lower level is clearly indicating that the investors are utilising dips to buy quality stocks.
*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 July 28, 2021)