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 a security. Almost 68 per cent of the stocks that constitute Nifty 50 equity benchmark index are trading above their 200-DMAs while 32 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, we observed that 4 per cent of the stocks of Nifty have plunged below their 200-DMAs. In the last five trading sessions, only one stock, i.e. Power Grid Corp has surged above its 200-DMA while three other stocks namely, Coal India, HDFC Bank, and Tata Steel have closed below their 200-DMA. On a WoW basis, Nifty plunged 248 points or 1.41 per cent.
From Monday’s high of 17,639, Nifty has plunged nearly 418 points or 2.36 per cent. Nifty 50 gained some points on Thursday but in vain as it was dragged down till the level of 17,200 in the following days. This week, the difference between the index close and 200-DMA has decreased and stands at 6.16 per cent, which was 8.08 per cent in the previous week. We observe that the difference got decreased, which indicates that the situation has worsened. Nifty is currently trading in an upward channel, and any increase in the stock falling below their 200-DMA will see Nifty finding itself in the range of 17,050-17,000.
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, all the stocks are trading above their 200-DMA. On a WoW comparison basis, Nifty Financial Services witnessed the highest fall in the number of stocks closing below their 200- DMA as 20 per cent of its constituents have closed below the key indicator. Next in line are Nifty Media and Nifty Pharma, which saw 10 per cent of their constituents falling below their 200- DMA. On the contrary, Nifty FMCG has witnessed the highest number of its constituents surging above their 200-DMA as about 13.34 per cent of the constituents closed above the key indicator. Nifty FMCG is followed by Nifty PSU Bank, which saw a 7.69 per cent rise in its constituents closing above 200-DMA.
The sectoral indices, i.e. Nifty Auto, Nifty Bank, Nifty IT, Nifty Metal, Nifty Private Bank, and Nifty Realty see no change in their number of constituents going above/below the 200-DMA. As we projected, Nifty FMCG was in focus this week as it was nearing its 200-DMA. Nifty FMCG saw an increase in its constituents surging above their 200-DMA but the index has not shown any improvement. It has rather fallen 235 points on a WoW basis. Though the constituents have performed well, the danger of the index falling below its 200-DMA still persists. Nifty Financial Services has to be watched keenly next week as it is nearing its 200-DMA. It has already witnessed an increase in its constituents falling below their 200-DMA. The difference between the index close and 200-DMA was 6.93 per cent last week, which has now become just 3.81 per cent. Overall, we don’t see much improvement in the sectoral sentiment. We need more sectors to show improved participation to witness a rally in Nifty 50
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 average ratio of stocks marking a fresh 52-week high/low last week was 11:3, which improved this week to 16:1 where, on an average, 16 stocks have touched a new 52-week high. On the flip side, on average, just one stock has hit a new 52-week low. From last Wednesday’s close, Nifty 500 has fallen about 120.15 points or 0.79 per cent. Nifty 500 was quite volatile this week as it made swings in either direction. On December 13, it made a high of 15,280, and from there, Nifty 500 lost nearly 327 points or 2.13 per cent.
Despite the fall in Nifty 500, we see that the number of stocks hitting a fresh 52-week low has not risen. Moreover, when Nifty 500 gained points on Thursday, Friday & Monday, we saw an increase in the number of stocks hitting a fresh 52-week high. On a WoW basis, we observe that the number of stocks marking a fresh 52-week high has increased. To add further, the number of stocks hitting a 52-week low has decreased. We see that the index has been into consolidation for the past two weeks with volatility but the internal strength of the market is improving. This minor improvement is attributed to the pullback rally of the index.
(Closing price as of Dec 15, 2021)