Over 1,700 stocks trade below their 200-DMA in 2018, Do U Know?
The Nifty hit a fresh record high (above 11,400) for the first time this week and the Sensex rallied above 37,800 on Monday. Benchmark indices might be hitting record highs but only a handful of stocks are trading above their 200-day daily moving average (DMA), a situation similar to 2008.
This technical gauge is considered as one of the most important indicators by traders and chartists to determine the long-term trend of a stock or an index. Theory suggests that as long as stocks trade above their 200-DMA, the overall trend is considered bullish, while it is exactly the opposite if it is trading below their 200-DMA.
Data suggests that as many as 1,720 stocks were trading below their 200-DMA in 2018 and only 160 stocks were trading above their crucial long-term average. In January 2008, when markets hit a record high, 1,300 stocks were trading below their 200-DMA while only 583 stocks were trading above their crucial long-term average, according to data collated from AceEquity.
The data points to a common theme which is ‘divergence’. Only a handful of stocks are taking markets higher while the majority of the market is still trading below this crucial level in 2008 as well as in 2018.
Let’s not forget that the top of 2008 was made after a multi-year uptrend which in that bull market multiplied indices by almost 10 times.source-www.moneycontrol.com
Mohammad added it is true that a number of scrips are trading below their 200-day moving averages as of now as mid and smallcap space was bruised and battered in the recent correction they appear to be on the verge of a turnaround on the charts.
From the period starting from May to mid-July, the market saw a clear divergence between the benchmark index and the broader market indices. The Nifty was in a consolidation mode during the period whereas the midcap and smallcap indices tumbled significantly.
There is a higher probability the markets will react like 2008 eventually. Micros are pushing the market to new highs while the macros such as the increase in interest rates, rising inflation, depreciating the currency and widening current account deficit are leading to greater fear in the Indian economy.
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