Sentiment Indicators

200-DMA INDICATOR :
This indicator measures the percentage of Nifty 50 stocks that are trading above/below their 200-day simple moving averag- es. 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 30 per cent of the stocks that constitute Nifty 50 equity benchmark index are trading above their 200-DMAs while 70 per cent of the stocks are trading below the 200-DMA. On a weekly basis, we observed that there is a 2 per cent rise in the stocks of Nifty rising above their 200-DMA. In the last five trading sessions, Bharti Airtel plunged below its 200-DMA whereas Cipla and Maruti Suzuki have surged above their 200-DMA. Since last Wednesday’s close, Nifty gained about 73 points or 0.45 per cent.

During this period, the index was largely volatile and swung in both directions. After testing the level of 15,700 nearly thrice, it managed to bounce back sharply and hit the level of 16,400 before receding a little. Interestingly, the index closed above 16,000 decisively, and thus, this level shall be keenly watched for the upcoming days. However, the outlook still remains bearish with strong support at the lower levels. With this, the distance between 200-DMA and the spot price of Nifty is now negative 5.88 per cent, which stood earlier at negative 6.7 per cent. Despite the volatility, there was hardly any significant percentage change in stocks rising above their 200-DMA. The focus for next week will be on the per cent change in the number of stocks rising above their key moving average as any increase would mean that the reversal has occurred. On the contrary, a negative change would term this week’s price action as a technical bounce and bearishness shall continue. 

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. All the sectoral indices witnessed a recovery this week while Nifty Auto and Nifty FMCG man- aged to rise above their 200-DMA indicator. On a WoW com- parison basis, Nifty Auto saw a maximum of about 20 per cent of its constituents surging above their 200-DMA. Moreover, Nifty Media, Nifty Pharma, and Nifty Private Bank saw this number to be at 10 per cent each. Nifty PSU Bank witnessed a rise of 7.69 per cent in its constituents rising above the key indicator.

Meanwhile, Nifty Bank, Nifty Financial Services, Nifty FMCG, Nifty IT, Nifty Metal, and Nifty Realty saw no change in their constituents crossing above/below the key indicator. This week, most of the sectoral indices witnessed a strong bounce back from their oversold territories. Nifty Metal, in particular, saw a strong short-covering rally of over 7 per cent from its low after being strongly sold-off in the past few weeks. If the recovery continues next week, the index is likely to outperform the other sectors. Along with Nifty Metal, Nifty Auto, Nifty FMCG, and Nifty Pharma are also expect- ed to see a positive move next week. However, Nifty IT and Nifty Realty continue to face strong resistance at higher levels despite being strongly sold-off in the past weeks. These indices underperformed heavily against the other sectoral indices this week. Thus, a cautionary note can be advised for these indices 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, sug- gests a bear market. On a WoW comparison basis, the average ratio of stocks marking a fresh 52-week high/low last week was 1:42 while this week, the ratio stood at 0:34. With this, on average, 34 stocks hit their fresh 52-week low whereas on the flip side, on average, no stock has hit a new 52-week high. On analysing this ratio, we find that the average number of stocks hitting a fresh 52-week low has reduced to some extent. This can be attributed to the short-covering rally, which hap- pened this week, as Nifty 500 index gained about 147 points or 1.06 per cent.

Since last Thursday, the number of stocks hit- ting their 52-week low kept on reducing, and on Wednesday, i.e., May 18, the number stood at 8. This is a positive sign for the bulls. However, the number of stocks hitting a fresh 52-week high has not yet seen any positive displacement. This means that the index is probably seeing a technical bounce from its oversold region. A key factor to observe next week remains to be this ratio. If any increase is seen in the number of stocks hitting a fresh 52-week high, the index can see a reversal. On the contrary, if the number of stocks hitting fresh 52-week low increases, we might possibly see the next leg of downfall, and which can be much more severe.

(Closing price as of May 18, 2022)