Of 1,392 stocks with a market value of over ₹1,000 crore, 62% or 856 are trading above their 200-day moving average (DMA), a key long-term trend indicator. When a stock or an index trades above this level, it’s considered a bullish sign. Similarly, a stock or an index below its 200-DMA is said to be in a bearish zone.
No Largecaps Trading Below 200-DMA
Historically, stocks mostly trade above these long-term trend indicators in a roaring bull market. In the event of declines such as the current one, they tend to fall below the 200-DMA, an indication of deep-rooted weakness in the market. The 200-DMA signifies a stock’s trend over the past year. A year has roughly 200 trading sessions.
Around 340 of the 1,392 stocks under review are trading 20% above their 200-DMA. Among the 91 stocks with market capitalisation of over ₹1 lakh crore—i.e. large-caps—none are trading below this level. More so, only 55 of the 1,392 stocks are trading 20% below their 200-DMA.
As per technical analysts, the 200-DMA trends suggest equities are neither overbought nor oversold. The Sensex and Nifty have fallen nearly 7% since October 1 with foreign investors dumping stocks worth over ₹1.17 lakh crore. The declines would have been steeper but for the ne ar-equivalent purchases by domestic institutional investors, including mutual funds and insurers. This is one of the reasons why many stocks have managed to stay above the 200-DMA.
Typically, when a stock or index falls 20% below the 200-DMA, it’s regarded as a deep bearish trend. At the same time, readings distant from the 200-DMA are also treated as contrarian indicators. This means a stock furthest away from the 200-DMA may see a trend reversal.“The 200-DMA is a technical parameter used by investors to enter into stocks at support levels and it is also used to gauge the market sentiment,” said Jatin Gedia, technical analyst, Sharekhan. “Technically, stocks are oversold on the daily time frame charts, and we expect a pullback in many stocks.”Analysts note that while the Nifty is trading 1.7% above its 200-DMA, some 168 of the 1,392 stocks are trading 10-20% below that level and some of them present good buying opportunities.