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 as an important and one of the basic technical indicators that can be used to determine the long-term trend of a security. 

Almost 60 per cent stocks that constitute the Nifty 50, the equity benchmark, are trading below their 200-DMAs, while 40 per cent stocks are trading above their 200-DMAs. In the last four trading sessions, Dr. Reddy, UPL and UltraTech Cement have closed below their 200-DMAs. On a week-on-week comparison basis, we observed that about 6 per cent of the stocks have closed below their 200-DMAs. Interestingly, for the last 54 trading sessions, the ratio of stocks trading above/below their 200- DMAs, which is highest in the CY 2019, is in the favour of bears. From the high of September 23, the 50-stock index has witnessed a downward move by almost 604.70 points or 5.17 per cent and this downward move was not only quantitative in nature but also qualitative as almost 10 per cent stocks have closed below their 200-DMAs since September 26, 2019. This clearly indicates that the euphoria of the corporate tax cut has faded out. Going ahead, the traders should adopt a wait and watch strategy, as in the coming week, Q2FY20 earnings will play a crucial role. It would be interesting to see whether the earnings will help to improve the market sentiment or deteriorate it further. 

Sectoral Sentiment Indicator : This indicator basically interprets the number of stocks in the sectoral indices trading above/below their 200-day moving averages (200-DMAs). This will help us identify the sectors that are improving their performances. The 50-share index Nifty has lost 46.60 points or 0.41 per cent since last Tuesday’s close; this looks like the investors have adopted a cautious stance ahead of Q2FY20 results. 

Also, it is clearly visible in the sectoral sentiment indicators as almost seven sectors have remain unchanged on a week-on-week (w-o-w) comparison basis, namely Nifty Auto, Nifty Bank, Nifty FMCG, Nifty IT, Nifty Private Bank, Nifty PSU Bank and Nifty Realty. While, the Nifty Pharma index has seen a substantial decline as 10 per cent stocks of the index have closed below their 200-DMAs, on the flip side, 6.66 per cent stocks of Nifty Media and Nifty Metal each have managed to close above their 200-DMAs. The Nifty Financial Services has seen an improvement as 5 per cent stocks have managed to close above their 200-DMAs. Among the constituents of Nifty Pharma index, almost 90 per cent stocks were trading below their 200-DMA by an average of about 18 per cent, but in the current week, we have seen a further correction in stocks by an average of 2.50 per cent. With this, the Pharma index itself is trading below its 200-DMA by 15.07 per cent. Among the constituents of Nifty Media, almost 80 per cent stocks traded way below their 200-DMAs (almost by an average 26.13 per cent below their 200-DMAs), which looks extremely overstretched. Hence, in the coming weeks, we may see some relief rally in Nifty Media stocks. Also, Nifty IT will be in the limelight as TCS and Infosys are declaring their Q2 financial results. 

Indicator To Gauge Internal Strength : This indicator helps us to gauge the internal strength of the market. Among the Nifty 500 stocks, increase in number of stocks reaching new 52-week highs and decrease in stocks reaching new 52-week lows is a representative of a bull market, and vice-versa being true about a bear market. On a w-o-w comparison basis, the previous week's ratio was 13:28 and, in the current week, the ratio is 4:31, where, on an average, four stocks touched new 52-week highs while 31 stocks hit new 52-week lows.

 
In the current week, the average number of stocks making 52-week low is higher since August 28, 2019 and the average number of stocks making 52-week high is lowest since August 13, 2019. Also, on Wednesday, the Nifty 500 index has witnessed an upward momentum by almost 174.45 points or 1.93 per cent. Despite the upward move, only four stocks have managed to touch new 52-week high. This clearly suggests that the internal strength of markets continues to deteriorate and further deterioration in the ratio would raise the risk of a more meaningful correction.