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Are Technical Indicators Flagging Deeper Weakness Across Nifty 500 Stocks?
Recent trends in technical momentum indicators are raising concerns about the market health of India’s top 500 stocks.
– Weakened Market Sentiment: Following a recent stock market selloff, analysts report that many stocks on the Nifty 500 index are now trading below both their short- and long-term moving averages. According to ICICI Securities, this indicates broad-based weakness in the market.
– Key Statistics:
– 70% of the 500 stocks are trading below the 50-day moving average (DMA).
– 60% are below the 200 DMA.
These indicators signify a loss of momentum. When an index or stock trades below its 50 DMA, it reflects diminished short- to medium-term momentum. Likewise, being under the 200 DMA signals a weakening long-term trend, suggesting the predominance of sellers across sectors.
– Previous Performance: Earlier this month, as the Nifty reached all-time highs, 54% of Nifty 500 stocks were above both the 50 and 200 DMAs.
Short-Term Momentum Fading
– Market Trends: The Nifty has slipped nearly 2% since hitting its all-time high on January 5, further declining by 2.5% over the past week. As of Tuesday, the index settled at 25,732.3, down 0.2%.
– Expert Insights: The market witnessed corrections for five consecutive sessions last week due to uncertainty surrounding the India-US trade deal and other global factors, explained Nilesh Jain, head of derivatives and technical research at Centrum Broking. He also noted that while a short-term rebound might be possible, a decisive upward movement is not anticipated in the near future.
– Advice for Investors: Jain cautions that the small-cap index is trading below both its long-term and short-term averages. He recommends focusing on large-cap stocks for a safer investment strategy.
– Warning Signs: Extreme readings of the moving average indicators suggest possible trend reversals. Currently, with only 30% of Nifty 500 stocks above the 50-day SMA, we are nearing an oversold condition, which could provide an opportunity to invest in quality stocks with strong fundamentals, stated Dharmesh Shah, head of technicals at ICICI Securities.
Historically, when the percentage of stocks above the 200-day DMA drops below 15%, the market typically bottoms out. Conversely, significant rallies tend to exhaust themselves when this metric approaches 90%.
As we continue to monitor the market, the question remains: are technical indicators flagging deeper weaknesses across Nifty 500 stocks? Today’s analysis suggests caution, as the combination of declining stock performance and shifting market dynamics could create hurdles for investors.
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