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 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 the net change is zero per cent, i.e., the equal number of stocks have risen above as well as fallen below their 200-DMA. In the last five trading sessions, Adani Ports has fallen below its 200-DMA while Kotak Mahindra Bank climbed above its 200-DMA. Since last Wednesday’s close, Nifty lost about 215 points or 1.32 per cent.

This week, a common trend was observed each day. Despite opening with a gap-up for most of the days, it witnessed a severe sell-off in the afternoon and closed at the day’s low for most of the time. Moreover, this week, Nifty tested its strong resistance of 16,400 but fell sharply thereafter. Nifty stocks continue to remain bearish while none of them have shown enthusiasm apart from Kotak Mahindra Bank, which has risen nearly 8 per cent in the last four trading sessions. As of Wednesday’s close, the difference between Nifty’s spot price and its 200-DMA is negative 7.16 per cent, which was negative 5.88 per cent earlier. A strong surge in the number of stocks rising above their 200-DMA is required for a change in the sentiment. 

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. From the sectoral indices, only Nifty Auto and Nifty FMCG are above their 200-DMA indicator. On a WoW comparison basis, Nifty Bank saw a maximum of about 8.33 per cent of its constituents surging above their 200-DMA. Moreover, Nifty Auto saw this number to be at 6.67 per cent. However, Nifty Media and Nifty Metal witnessed a strong sell-off this week while about 10 per cent & 6.67 per cent of their constituents fell below the 200-DMA, respectively.

Nifty PSU Bank saw a rise of 7.69 per cent in its constituents falling below the key indicator. Meanwhile, Nifty Financial Services, Nifty FMCG, Nifty IT, Nifty Pharma, Nifty Private Bank, and Nifty Realty saw no change in their constituents crossing above/below the key indicator. This week, sector-specific action was witnessed. The Government of India announced an excise duty cut on fuels and we saw a stellar rally in the auto stocks. The auto index jumped nearly 6 per cent from this week’s low and was one of the top performers among the sectoral indices. Along with Nifty Auto, Nifty Bank performed well and remained flat. Thus, the downside risk seems to be very limited in these indices. However, Nifty Metal saw one of the worst days in recent times, as on Monday, the index fell over 8 per cent. After the government’s announcement of an increase in export duty, the metal stocks fell drastically. Nifty Metal turned out to be an underperformer and thus, it is likely to be under pressure for some more time. 

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 0:34 while this week, the ratio stood at 3:27. With this, on average, 27 stocks hit their fresh 52-week low whereas on the flip side, on average, only three stocks have hit a new 52-week high. Since last Wednesday’s close, Nifty 500 index has fallen nearly 331 points or 2.37 per cent.

Primarily, this week, the index was subjected to strong gap-ups and gap-downs. With this, some stocks have seen strong buying and consequently, hit their 52-week high whereas some stocks continue to fall and recorded a new 52-week low. Despite the ratio being better than the previous week, we haven’t seen a drastic change in the number of stocks hitting their 52-week low. Thus, the bearishness still persists. On the other hand, only a few stock-specific actions have led to an increase in the average number of stocks hitting a 52-week high. Any drastic increase in the number of stocks hitting a fresh 52-week high will mean a party for the bulls and a downside risk would be very limited. However, looking at the current scenario, the chances are quite less and any increase in the average number of stocks hitting a 52-week low would be met with strong negativity. 

*LEGEND: •  DMA - Daily Moving Average. •  MACD - Moving Average Convergence Divergence n RMI - Relative Momentum Index •  ROC - Rate of Change •  RSI - Relative Strength Index 

(Closing price as of May 25, 2022)