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 32 per cent of the stocks that constitute Nifty 50 equity benchmark index are trading above their 200-DMAs while 68 per cent of the stocks are trading below the 200-DMA. On a weekly basis, we observed that the net change is 2 per cent in the average number of stocks rising above their 200-DMA. In the last five trading sessions, Hero MotoCorp, ICICI Bank, and Tata Motors have surged above their 200-DMA while Kotak Mahindra Bank & ONGC plunged below the 200-DMA. Bulls dominated this week as Nifty gained about 497 points or 3.10 per cent since last Wednesday’s close.
Most importantly, the index gave a strong breakout from its 15,700-16,400 trading range and went higher to test the level of 16,700. However, it faced strong resistance at this level and receded a little. In the past three days, the index is trading in a tight range of about 250 points. However, despite a good bounce, there hasn’t been any significant change in the stocks crossing above their 200-DMA. Stock-specific action continued this week too as Mahindra & Mahindra shot up by nearly 12 per cent in the last five trading sessions. With this positivity, the difference between Nifty’s spot price and its 200-DMA is negative 4.50 per cent, which was negative 7.16 per cent earlier. A strong surge in the number of stocks rising above their 200-DMA is required for a stronger upside.
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. Among the sectoral indices, only Nifty Auto and Nifty FMCG are above their 200-DMA indicator. On a WoW comparison basis, Nifty Auto saw a maximum of about 20 per cent of its constituents surging above their 200-DMA. Moreover, Nifty PSU Bank saw this number to be at 15.38 per cent. Also, Nifty Financial Services, Nifty Private Bank, and Nifty Realty witnessed a rise of about 10 per cent each of their constituents surging above the 200- DMA. Meanwhile, Nifty Bank, Nifty FMCG, Nifty IT, Nifty Media, Nifty Metal, and Nifty Pharma saw no change in their constituents crossing above/below the key indicator.
As we discussed last week that the auto sector may trade with positivity, turned out to be true! Nifty Auto surged above its prior swing high and is above all its key moving averages. Along with Nifty Auto, Nifty PSU Bank also underwent a strong surge from its recent swing low and bounced about 6.92 per cent. Strong buying interest was witnessed in these two sectors and they shall remain to be a hot topic for the next week. Meanwhile, Nifty Pharma has been disappointed with its sluggish performance. The financial results of some pharmaceutical companies were under par, due to which, the index witnessed a sell-off. With this, it is approaching its prior swing low and any fall below May’s low would be met with strong negativity. Thus, traders should remain cautious about the index.
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 3:27 while this week, the ratio turned in the favour of bulls and it stood at 4:19. With this, on average, four stocks hit their fresh 52-week high whereas on the flip side, on average, about 19 stocks have hit a new 52-week low. Nifty 500 index witnessed a good bounce this week and gained about 495 points or 3.64 per cent since last Wednesday’s close.
After hitting a swing low of 13,445.25, the index witnessed a strong rally of 770 points before seeing some resistance at higher levels. The broader index is well off from its low and is above its 20-DMA. With such price action, the average number of stocks hitting a fresh 52-week low has drastically reduced. Meanwhile, some improvement has been seen in the number of stocks hitting a fresh 52-week high. However, it is important that the number of stocks hitting fresh 52-week highs further increase as this would indicate a change in trend from bearish to bullish. Besides, any increase in its counterpart shall mean this price action is a technical bounce and the outlook may remain bearish. Moreover, stock-specific action shall continue to dominate.
(Closing price as of June 01, 2022)