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 security. Almost 86 per cent of the stocks that constitute Nifty 50-the equity benchmark index are trading above their 200-DMAs while 14 per cent of the stocks are trading below their 200-DMAs. On a WoW comparison basis, we observed that 8 per cent of the stocks of Nifty have slipped below their 200-DMAs. In the last five trading sessions, Bajaj Auto, BPCL, Eicher Motors, and Shree Cement have slipped below their 200-DMA.
On Tuesday, Nifty index has marked a fresh all-time high of 18,604.45 level and thereafter, witnessed correction. From the all-time high, Nifty index has corrected nearly 340 points or nearly 2 per cent in just two trading sessions. The index has formed sizeable bearish candles on the daily chart. Along with this fall in the index, we have seen a significant deterioration in the ratio of stocks that are trading above/below their 200-DMA. This indicates that the stocks are participating in the fall. Further, the difference between the closing price of the index and 200-DMA has also narrowed. On Monday, the difference between the closing price of the index and its 200-DMA was 18.52 per cent while currently, the difference is 16.83 per cent. This clearly indicates that the overheated counters are reverting to their mean and further deterioration in the ratio of stocks moving above/below their 200-DMA would raise the risk of a more meaningful correction.
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. Currently, all the sectoral indices are trading above their 200-DMA. Among the constituents of Nifty IT, Nifty Media, and Nifty Realty, all the stocks are trad-ing above their 200-DMA. The last two trading sessions were undoubtedly dominated by the bears and it is clearly reflected in the sectoral sentiment indicator, with the bulk of the com-ponents of the sectors closing below their 200-DMAs. To begin with, on a WoW comparison basis, as many as 20 per cent of the stock components of Nifty Auto have managed to close below their 200-DMAs, followed by Nifty Metal, where 13.33 per cent component slipped below their crucial 200-DMA.
Among the constituents of Nifty Pharma and Nifty Private Bank, about 10 per cent each of the stock constituents had moved below 200-DMA, followed by Nifty Bank index, where 8.33 per cent stocks slipped below their 200-DMA. Nifty FMCG index has seen a minor dip in the stocks as the stocks trading below their 200-DMAs fell to 13.33 per cent from 6.66 per cent last week. On the other hand, among the constituents of Nifty Realty, 10 per cent of the stocks have surged above their 200-DMA. The ratio of stocks moving above/below their 200-DMA of Nifty Financial Services, Nifty IT and Nifty Media indices remained unchanged on a WoW comparison basis. In the last four trading sessions, Nifty IT has outperformed the benchmark indices as it gained 4.42 per cent. Currently, the difference between 200-DMA and Nifty IT index closing price is nearly 28 per cent. Nifty Pharma index has lost 3.42 per cent in the last four trad-ing sessions. Currently, the difference between Nifty Pharma index closing price and its 200-DMA is just 4.38 per cent. It will be interesting to watch the behaviour of Nifty Pharma index in the next couple of trading sessions.
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 previous week's average ratio of stocks marking a fresh 52-week high/low was 51:0 and in the current week, the average ratio is 52:1 where, on average, 52 stocks touched a new 52-week high. On the other hand, on average, only one stock has hit a new 52-week low. On Tuesday, Nifty 500 index has surged above the psychological level of 16,000 for the first time but it did not sustain at higher levels and witnessed correction. From the high of 16,004.45, the index has slipped by over 435 points or nearly 3 per cent.
This is reflected well in this indicator as in the last two trading sessions, we have seen a significant decline in the stocks marking a new 52-week high. Also, we have seen an improvement in the stocks marking a fresh 52-week low. On Monday and Tuesday, on average, 70 stocks had marked a 52-week high from Nifty 500 universe. While in the last two trading sessions, on average, only 34 stocks marked a new 52-week high. In addition to this, on Wednesday, only 11 constituents of Nifty 500 had marked a fresh 52-week high, which is the lowest in the last 46 trading sessions. Besides, since the last two trading sessions, one stock marked a fresh 52-week low. This current structure of the indicator is clearly indicating that the internal strength of the market has weakened significantly in the last two trading sessions.
(Closing price as of Oct 20, 2021)