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 78 per cent of the stocks that constitute Nifty 50 equity benchmark index are trading above their 200-DMAs while 22 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, we observed that 20 per cent of the stocks of Nifty have surged above their 200-DMAs. In the last five trading sessions, as many as 10 stocks surged above their 200-DMA. These stocks include Adani Ports, Indus Towers, Coal India, Eicher Motors, HDFC Bank, Britannia, HDFC, JSW Steel, Kotak Mahindra Bank, and Power Grid Corporation.

Meanwhile, no stock plunged below its 200-DMA. Since last Wednesday’s close, Nifty has surged about 712 points or 4.13 per cent. It can be considered a constant upward rally by the index this week as four out of five trading sessions, ended in the green. Extreme bullish sentiment was seen in Nifty as it closed near its day’s high for the fourth consecutive day. The bullishness can be confirmed as Nifty crossed its prior swing high of 17,639 this week. Besides, the difference between the index close and 200-DMA has increased by a healthy margin. Earlier, the difference stood at 5.43 per cent, which has exceeded 9.36 per cent. Our prediction of last week that Nifty might see its bottom, has come true. Now that the stocks are gaining strength, we can say that the worst is over, and one can expect more stocks to surge above their key indicator.

Sectoral Sentiment Indicator : This indicator basically interprets the number of stocks in the sec- toral indices that are trading above/below their 200-day moving averages. This will help us to know which sectors are improving their performance. After many weeks, we have witnessed that all the sectoral indices are trading above their 200-DMA. Nifty IT is the only sectoral index, which has all of its constituents trading above their 200-DMA. On a WoW comparison basis, we see that none of the constituents of any sectoral index plunged below its key indicator. Nifty Bank has witnessed the highest surge in its constituents (about one-third) closing above their 200-DMA. Next in line is Nifty Private Bank, which saw about 30 per cent of its constituents rising above their 200-DMA. Nifty Auto, Nifty Financial Services, and Nifty Metal saw about a 20 per cent rise in their constituents surging above their key indicator. Nifty PSU Bank too saw a rise of about 15.28 per cent of its constituents above their 200-DMA while Nifty FMCG saw that number to be at 13.33 per cent.

Furthermore, Nifty IT and Nifty Media saw a rise of 10 per cent each in their constituents soaring above the key indicator. The sectoral indices like Nifty Pharma and Nifty Realty saw no change in their constituents crossing above/below their key indicator. As we discussed last week, the focus would be on the banking indices to anticipate further rallies. As it held true, Nifty Bank rallied over 7.5 per cent and was the star performer among the sectoral indices this week. The difference between the index close and its 200-DMA lies at 5.5 per cent. With such a dramatic rise in the constituents of banking & financial sectors trading above the key indicator, these sectors will likely remain in focus for the next week as well. However, one sector that is trading near its key indicator is Nifty Pharma. The index hasn’t performed well this week even when the market sentiment was quite good. The current difference between the index and its 200- DMA is less than a per cent. Thus, Nifty Pharma will remain a worry for the next few days. 

Indicator To Gauge Internal Strength : This indicator helps us to gauge the internal strength of the mar- ket. 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 9:2, which has improved this week to 16:1. We see that there has been a dramat- ic rise in the average number of stocks hitting their 52-week high whereas, the average number of stocks that hit their 52-week low stayed low. Thus, what we saw this week was a follow-up from the previous week where the situation had improved a little. From last Wednesday’s close, Nifty 500 has surged about 533 points or 3.5 per cent.

Nifty 500 showed a clear uptrend this week, as it remained positive most of the time. Mondays are observed to have a huge action since the past few weeks and the case appears to be the same this week. The index formed a strong bullish can- dle and surged about 1.39 per cent, before closing near the day’s high. On that day, as many as 21 stocks hit their 52-week high, which has been the highest number since 32 trading sessions. Also, none of the stocks hit their 52-week low in three out of five trading days. With a win-win scenario in respect to the stocks hit- ting 52-week high and low, we can conclude that Nifty 500 has gained strength. Thus, we can certainly expect a greater number of stocks to hit their 52-week high next week as this will propel the index even higher.

(Closing price as of Jan 05, 2022)