While the domestic equity market is looking intact optically at the benchmark level, a selloff below the surface has nudged 75 per cent of the NSE-listed stocks below their 200-day moving averages; meaning they have entered a bearish phase.
The 50-share Nifty is up over 7 per cent this year at 11,691 till June 19, while Nifty Midcap100 and Nifty Smallcap250 indices have declined up to 5 per cent in the same period.
On Friday, as much as 42 per cent of Nifty components traded below their 200-day moving averages (DMAs). The list included Britannia IndustriesNSE -0.26 %, CiplaNSE 0.05 %, Eicher Motors, Gail India, Hindalco, Hero MotoCorp, Indiabulls Housing Finance, ITC, YES Bank, Tech Mahindra, Tata Steel and Tata Motors.
“A stock trading below 200 DMA means it is in the corrective zone. The benchmark index looks well placed currently, but individual stocks have been beaten down badly. Ideally, one should focus on stocks that are sustaining above their 50-DMAs,” said Vaishali Parekh, Senior Technical Analyst at Prabhudas Lilladher.
“I do not see Nifty going down below 11,550,” she said, adding that market participants can consider pharma and capital goods stocks at this point.
Even in the Nifty500 pack, 60 per cent or 300 stocks are trading below 200-DMAs in clear signs of selling pressure across sectors.
Stocks trading below this crucial support line included 3M India, ACC, Adani Green, Avenue Supermarts, Bank of Baroda, Deepak Fertilisers, Crisil, Cochin Shipyard, ICICI Securities, Jaiprakash Associates, Jain Irrigation, among others.
Moving averages (MA) are a tool for analysing trend in a stock or an index. They provide useful information on support and resistance levels.
Usually, a trader or investor uses three major MAs, that of 50, 100 and 200 days. When a stock trades above all the DMAs, it is considered a continuous uptrend.
During corrective moves, stocks often come off their highs and slip below moving averages. Shallow corrections see stocks test 50-DMAs or 100-DMAs, while serious corrections may cause a stock slip below 200-DMA.
The 200-day average, also known as a long-term moving average, acts as a crucial support for an index or a stock, while the 100-day average reflects a six-month timeframe and the 50-day average measures a quarter. The 20-day average measures a month and 10-day average two weeks
On Thursday, stocks like Wipro, Voltas, UPL, Va Tech Wabag, Symphony, Sunteck Realty, SRF and Sonata Software traded above their 200-DMA, while SAIL, Sterling Tools, Tata Chemicals, Tata Motors, Videocon Industries, VIP IndustriesNSE -0.81 % and Wonderla Holidays are among other stocks trading well below their 200-DMAs.
Around 300 stocks, including Aarti Industries, DCM Shriram, BPCL, Bata India, Info Edge, Infosys, Inox Leisure, HDFC, Redington and PNC Infratech, were above all the three DMAs, signalling a bullish trend.
“Available data clearly shows the market has begun a sideways secondary trend after a long primary uptrend. In the secondary phase, the market first consolidates and takes a fresh call either on the upside or downside depending on the technical setup at that point of time. PSE and infrastructure stocks, including L&T and NCC, should remain resilient in the coming days,” said Milan Vaishnav, Technical Analyst, Gemstone Equity Research and Advisory.
Sameet Chavan, Chief Analyst for Technicals and Derivatives at Angel Broking, said the primary uptrend is expected to resume soon.
“However till then traders are advised to keep positions light and avoid bottom fishing in stocks that have run into the abyss through this volatile period,” Chavan said.