Over 90% of Stocks in Nifty 500, MidCap 100, and SmallCap 100 Trading Above 200-DMA
A large number of stocks in Nifty 500, Nifty MidCap 100, and Nifty SmallCap 100 are trading above their 200-day moving average (DMA), a technical indicator that shows the average closing price of a stock over the past 200 days. This indicates that the stocks are potentially nearing an overbought zone, according to analysts.
The 200-DMA is a valuable tool in technical analysis, and a reading above this level suggests that the stock is in a bullish trend. However, a large number of stocks trading above the 200-DMA can also be a sign of a bubble, as it suggests that the market is overheated.
In the case of the Indian stock market, the 200-DMA for Nifty 500 is currently at 19,200. As of September 10, 2023, 90% of the stocks in Nifty 500 are trading above this level. In Nifty MidCap 100, 95% of the stocks are trading above the 200-DMA, and in Nifty SmallCap 100, 90% of the stocks are trading above this level.
Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities, said that the widespread participation across various sectors signals a broad-based rally, indicating a structural bull market rather than a bubble in a few concentrated sectors. However, he added that a large number of stocks trading above their 200 DMA levels raise a cautionary flag for bullish investors.
Rajesh Palviya, analyst at Axis Securities, said that the market observed a price and time correction in August 2023, with the index dropping from 19,867 to the 19,200 levels. The price action for the month formed a bearish candle, indicating a lower high, lower low pattern, compared to the previous month, signifying caution or negativity in market sentiment during that period. However, he said that it’s important to note that the index is still in a strong medium- to long-term uptrend, so these small corrections are viewed as opportunities for buying and accumulation.
“In the near term, any correction towards the 19,000-18,800 levels should be seen as buying opportunities. The index has the potential to extend its rally and reach levels towards the 19,800-20,000 levels. Our bias remains positive, and we anticipate a potential sector rotation within this bull market,” Palviya added.
Here are some of the factors that could lead to a correction in the market:
- The upcoming state and Parliament elections next year could lead to volatility.
- The path taken by central bankers on the change in policy stance could also provide interim bouts of volatility.
- Investors may start to reduce their exposure to high-beta midcaps and smallcaps, and shift their focus to largecaps.
Overall, the market is still in a strong uptrend, but investors should be aware of the risks and take a cautious approach.
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