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 18 per cent of the stocks that constitute Nifty 50-the equity benchmark index, are trading above their 200-DMAs while, 82 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, there is no significant development seen as the ratio remains unchanged. In the month of April 2020, Nifty index has gained almost 955.60 points or 11.11 per cent.

However, if you look at the indicator, it did not mirror the strength, which is showed by the index as the average ratio of stocks trading above/below its 200-DMA stood at 14:86, where on an average 14 per cent stocks are trading above its 200-DMA while, 86 per cent stocks are trading below its 200-DMA. This clearly suggests that this pullback rally is not backed by broader-based participation and the current rally is led by some heavyweight counters. In themonth of April, the index bellwether-Reliance Industries have gained almost 28 per cent, followed by ICICI Bank by 14.42 per cent. However, for the further upside in index, the ratio of stocks that are trading above/below its 200-DMA needs to improve otherwise, it would be not surprising if we see a consolidation with a negative bias in the index.

Sectoral Sentiment Indicator :
This indicator basically interprets the number of stocks in the sectoral indices, trading above/below their 200-day moving averages. This will help us to know which sectors are improving their performance. Considering the current structure of the sectoral sentiment indicator, all the constituents of almost seven sectors out of 11, are trading below their 200-DMA. Since the last Wednesday, Nifty index has gained almost 366.05 points or 3.98 per cent but on the sectoral front, the uncertainty is clearly visible as on WoW comparison basis, almost nine out of 11 sectors remain unchanged. On a WoW comparison basis, the sectoral index Nifty IT has seen a substantial improvement after 12 weeks, as almost 20 per cent of the stocks have managed to close above their 200-DMAs.

On the flip side, among the constituents of Nifty PSU Bank, almost 7.69 per cent stocks have managed to close below their 200-DMAs. Nifty Auto, Nifty Bank, Nifty Financial Services, Nifty FMCG, Nifty Metal, Nifty Pharma, Nifty Private Bank and Nifty Realty indices remained unchanged on a WoW comparison. Among the constituents of Nifty IT index, last week, the stocks were trading below their 200-DMAs by an average of about 20.23 per cent but in the current week, we have seen the average rebound by 7.97 per cent. In the current week, financial sector has seen some relief rally, as among the constituent of Nifty Private Bank index, we have seen an average rebound by 5.28 per cent, followed by Nifty Financial Services by 4.67 per cent. Among the constituents of Nifty Bank index, last week, the stocks were trading below their 200-DMAs by an average of about 38.86 per cent but in the current week, we have seen the average rebound by 4.45 per cent.

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, the previous week's average ratio was 3:4 and in the current week, the average ratio is 4:5 where, on an average, four stocks touched new 52-week highs while, five stocks hit new 52-week lows. On April 9, 2020, the index has marked a high of 7,454.90 and at that time, the ratio of stocks making new 52-week high/low stood at 12:8, while, 12 stocks touched new 52-week highs and eight stocks hit new 52-week lows.

On Wednesday, the index closed at 7,797.20 which is 355.55 points or 4.77 per cent above from the close of April 9 but the current ratio is 2:4, which clearly indicates fewer individual stocks rallying along with the market. Also, the average ratio of stocks making new 52-week high/low was in favour of bears since the last two weeks. These factors may be giving some suspicious vibes about the continuity of the pullback rally in the markets but it does not mean that we should go ahead and short the markets blindly it needs to be confirmed by price.