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 security. Almost 60 per cent of the stocks that constitute Nifty 50-the equity benchmark index are trading above their 200-DMAs while 40 per cent of the stocks are trading below their 200-DMAs. In the last five trading sessions, Bajaj Finance, Grasim, and Titan have managed to close above its 200-DMA while on the flip side, only Bharat Petroleum Corporation Limited (BPCL) managed to close below the 200-DMA. On a WoW comparison basis, we observed that 4 per cent of the stocks have managed to close above their 200DMAs. For the first time since February 2020, Grasim has managed to close above its 200-DMA.
On August 11, 2020, the index has marked a high of 11,373.60, and during that time, the ratio of stock trading above/below 200-DMA stood at 56:44, where 56 per cent stocks were trading above their 200-DMA and 44 per cent stocks were trading below their 200-DMA. On Wednesday, the index has surpassed the high of 11,373.60 and for the first time, it closed above 11,400 after February 2020. This time, the ratio stood at 60:40, which clearly suggests that, along with the recent upmove in the benchmark index Nifty, the ratio has improved. Also, on August 18, 2020, the ratio of stocks trading above/below its 200-DMA stood at 62:38, which is the most-improved ratio since January 24, 2020. Going ahead, the current structure of the indicator is suggesting that the benchmark index is witnessing broader-based participation in the rally and it is likely to continue its northward journey.
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. Among all the sectoral indices, Nifty Auto, Nifty FMCG, Nifty IT, Nifty Media, Nifty Metal, and Nifty Pharma are trading above their crucial 200-DMA. On a WoW comparison basis, the sectoral index, Nifty Metal has seen a substantial improvement as almost 20 per cent stocks have managed to close above their 200-DMAs, followed by Nifty Media by 14.29 per cent. Among Nifty Realty and Nifty FMCG, about 10 per cent and 6.67 per cent, respectively of the stock constituents have crossed the wall of 200-DMA. On the flip side, Nifty Financial Services index saw a minor dip in the stock, as the stock trading above its 200-DMA fell to 25 per cent from 30 per cent last week.
Nifty Auto, Nifty Bank, Nifty IT, Nifty Pharma, Nifty Private Bank, and Nifty PSU Bank indices remained unchanged on a WoW comparison. Among the constituents of Nifty Realty index, last week, the stocks were trading below their 200-DMAs by an average of about 15.11 per cent and in the current week, we have seen the average bounce by 8.86 per cent. In line with our expectation, Nifty Media index has seen nearly 11 per cent bounce in the last five trading sessions. Along with this upward move, Nifty Media index has managed to close above its crucial 200-DMA for the first time after May 29, 2018. The general observation is that when the index moved above or below its 200-DMA, the majority of stocks were also following the same trend. Hence, going ahead, we may witness some stock-specific action in Nifty Metal’s constituents. In the coming weeks, Nifty PSU Bank may be an attention-seeker because the index is consolidating in a range and there is no significant development, i.e. no addition or drop was seen in the ratio since the last five weeks.
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 22:0 and in the current week, the average ratio is 10:0 where, on average, 10 stocks touched a new 52-week high while on the flip side, not a single hit a new 52-week low.
In the last five trading sessions, Nifty 500 index has gained 127.75 points or 1.37 per cent. Despite that, we have seen a decline in stocks making a new 52-week high. Also, on a WoW comparison basis, the current weeks’ average ratio of stocks making a new 52-week high is lowest since July 1, 2020. This clearly suggests that in the current week along with the upward move in the index, the stock hitting new 52-week high is not increased; only fewer individual stocks are rallying along with the market. This kind of negative divergence often indicates an early sign of market correction but it needs to be confirmed by price.
(Closing price as of Aug 19, 2020)