Joshs Finance

Sentiment Indicators. – Dalal Street Investment Journal

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 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 there was a net change of 10 per cent of Nifty stocks rising above their 200-DMA, which is a positive sign. In the last five trading sessions, Cipla, Dr Reddy’s Laboratories, ICICI Bank, NTPC, SBI, and Sun Pharma surged above their 200-DMA while Nestle India plunged below its key indicator. After two weeks of a positive consolidation, Nifty finally showed strong positivity as it surged past the 16,200-mark. Everything seemed perfect while the index was above its 20-DMA and 50-DMA indicators.

However, the global and local inflation data put brakes on Nifty rally as the index tumbled over 300 points from its week’s high in just two trading sessions. On a WoW basis, Nifty fell just 23 points but succumbed to the huge volatility caused by the inflation data. The stock-specific action continued this week too as TCS & HCL Technologies reported lower-than-expected quarterly numbers and witnessed a sharp sell-off. On the contrary, financials and PSU bank stocks performed well and supported the market. A positive point to note here is that despite the volatility, we saw more stocks rising above their 200-DMA. It shows that the stocks are seeing a good recovery from their swing lows, and we can expect Nifty to remain strong amid volatile conditions. With this, the difference between the index closing (Wednesday) and its 200- DMA is negative 6.60 per cent, which was nearly the same as that of the last week. The stance for the next week remains the same; positive participation from the stocks is the key for the index to remain strong during these volatile times. 

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. It was a good week for the sectoral indices as most of them ended positively on a WoW basis. Among the sectoral indices, Nifty Auto and Nifty FMCG are currently above their 200-DMA. On a WoW comparison basis, Nifty PSU Bank saw a maximum of about 23.08 per cent of its constituents surging above the 200-DMA. Meanwhile, Nifty Pharma witnessed about 20 per cent of its constituents rising above the key indicator. Almost 16.67 per cent of the constituents of Nifty Bank too rose above their 200-DMA.

Also, Nifty Private Bank saw this number to be at 10 per cent whereas we saw about 6.67 per cent of the constituents of Nifty Auto rising above the key indicator. Moreover, about 5 per cent of Nifty Financial Services constituents rose above their 200-DMA. Meanwhile, Nifty FMCG, Nifty IT, Nifty Media, Nifty Metal, and Nifty Realty saw no change in their constituents crossing above/below the key indicator. This week, PSU banks outperformed the other sectors by a huge margin. Nifty PSU Bank rose over 5 per cent last week, owing to the positive news that government might consider offloading its controlling stake from 51 per cent to 26 per cent in the upcoming privatisation bill. With this, the index inched away from moving above its 200-DMA but a move above this can be quite positive for the index in the upcoming days. Meanwhile, Nifty IT continues to underperform as it witnessed a sharp sell-off, owing to TCS and HCL Tech’s poor results. The index shows no signs of improvement whatsoever and with more IT companies set to declare their results next week, it would be a wise decision to stay away from the index until it shows some clarity.

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 4:8 while this week, the ratio improved significantly to 6:2. On a WoW basis, on average, six stocks hit their fresh 52-week high whereas on the flip side, on average, about two stocks have touched new 52-week lows.

Nifty 500 index continued its upward journey this week and rose 157 points or 1.15 per cent. The third week of positivity witnessed a sharp increase in the number of stocks hitting 52-week highs while it also saw a good reduction in stocks hitting 52-week lows. Interestingly, the broader index was seen performing better than the other benchmark indices, which saw a good number of the stocks rising to their 52-week high levels. In the upcoming days, the index shall first react to the US inflation numbers, which is likely to induce volatility. However, the improving ratio indicates good internal strength of the index and we can expect more positivity from the index in the times to come.

(Closing price as of July 13, 2022) 

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