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 a security. Almost 70 per cent of the stocks that constitute Nifty 50 equity benchmark index are trading above their 200-DMAs while 30 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, we observed that 10 per cent of the stocks of Nifty have slipped below their 200-DMAs. In the last four trading sessions, Cipla, Eicher Motors, HDFC Bank, IndusInd Bank, and HDFC Life Insurance Company have plunged below their 200-DMA.
On a WoW basis, Nifty is down by 395 points or 2.2 per cent. In line with our expectations, Nifty has given a breakdown from its countertrend consolidation pattern and witnessed a sharp fall. Now, the level of 17,200 will be a crucial support. In Nifty’s poor display of performance, we see that 32 per cent of the stocks slipped below their 200-DMA, which is the highest since November 3, 2020. Further, the difference between the index close and 200-DMA has declined significantly. Currently, the difference is 8.46 per cent. When the index was at an all-time high, this difference was 19.12 per cent. After registering the low of 17,216, the index witnessed a pullback rally. The pullback rally was halted at the Fibonacci retracement of 0.382. Any move below 17,216 will mean serious implications for the market.
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 except Nifty Pharma are trading above their 200-DMA. Among the constituents of Nifty IT and Nifty Media, all the stocks are trading above their 200-DMA. On a WoW comparison basis, Nifty Private Bank witnessed the highest fall in the number of stocks closing below their 200-DMA as 30 per cent of its constituents have closed below the key indicator. The sectoral indices, i.e. Nifty Financial Services and Nifty Bank have seen 25 per cent of their constituents closing below their 200-DMA, followed by Nifty Pharma, where 20 per cent of the stocks plunged below their 200-DMAs. Around 6.66 per cent of the constituents of Nifty Auto too slipped below their 200-DMA. The ratio of stocks moving above/below their 200-DMA of Nifty IT, Nifty Media, Nifty Metal, Nifty Realty, Nifty FMCG, and Nifty PSU Bank indices remained unchanged on a WoW comparison basis.
Nifty Pharma continues to underperform as the distance between the index closing and 200-DMA widened on a WoW basis. In line with our expectations, 20 per cent of its constituents of Nifty Pharma index slipped below their 200-DMA, following the behaviour of their index. In the case of Nifty Private Bank, the index took the support of its 200-DMA before bouncing back. The sector is weak as 40 per cent of its stocks have slipped below their 200-DMA in just two weeks. It is currently 2.2 per cent above its 200-DMA. In case it slips below the 200-DMA, we can see a sharp fall in private banks, similar to what we saw in the pharma stocks. The same is the case with Nifty Bank where the index is up by 4.93 per cent from its 200-DMA. One-third of the index stocks have slipped below their 200-DMA in two weeks. The indices being structurally weak, the banking indices would be in focus for the next week.
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 28:3 and in the current week, the average ratio is 14:10 where, on average, 14 stocks touched a new 52-week high. On the flip side, on average, 10 stocks have hit a new 52-week low. From last Wednesday’s close, Nifty 500 has fallen 635 points. Nifty 500 showed no sign of strength as it continued to fall sharply this week.
Along with this, we witnessed that the ratio of stocks hit-ting 52-week high/low has turned into the favour of bears. It’s the first time since May 27, 2020, that the number of stocks hitting a 52-week low has crossed above the number of stocks hitting a 52-week high. During this weakness, we face disappointment as on average, only 14 stocks have marked a fresh 52-week high in the current week as against 28 stocks in the previous week. Also, we see an increase in the stocks hitting 52-week low as on average, 10 stocks hit their 52-week low as against 3 stocks in the previous week. In the past three weeks, we are seeing a fall in the number of stocks hitting their 52-week high. The number of stocks marking a fresh 52-week low was the highest since May 27, 2020, where we observed similar numbers. This shows that the internal strength of the market has weakened when compared to the previous week and a further increase in the stocks marking a 52-week low would elevate the risk of a bearish phase.
(Closing price as of Nov 24, 2021)