The selloff in the domestic equity market has dragged the benchmark Nifty over 3 per cent down in September so far. The index slipped to 11,287 on September 11 from 11,680 on August 31.
In the process, more than 20 stocks in the Nifty50 index have slipped below their 200- day moving average (DMA). The list included Adani Ports and Special Economic Zone, Bajaj AutoNSE 1.21 %, Bharat Petroleum Corporation, Bharti Airtel, Bharti Infratel, Eicher Motors, Grasim, Hero MotoCorpNSE -0.64 %, Hindalco Industries, HPCL, IOC, Maruti Suzuki, Power Grid, Tata Steel and Vedanta.
On the Nifty500, as many as 344 stocks or as much as 69 per cent of the index pack, now trade below their 200-DMAs, reflecting intense selling pressure across sectors.
Other stocks trading below this crucial support line include ACC, Aditya Birla Capital, Aegis Logistics, Ashoka Buildcon, Avanti Feeds, Bank of Baroda, Bank of India, Bajaj Electricals, Birla Corporation, Emami, Engineers India, Finolex Cables, Godrej Properties, Indiabulls Housing Finance and MMTC, among others.
Moving averages normally help market participants analyse an emerging trend in a stock or an index. They provide useful information on support and resistance points.
Usually, a trader or investor uses three major DMAs or daily moving averages, that of 50, 100 and 200 days. When a stock trades above all the DMAs, it is said to be in a continuing uptrend.
During corrective moves, stocks often come off their highs and slip below moving averages. Shallow corrections make stocks test their 50-DMA or 100-DMA, but any serious correction may cause a stock not only to test the 200 DMA but also slip below it.
“Without doubt stocks quoting below their 200-day moving averages are sentimentally weak, suggesting that they are in a long-term downtrend. However, as the bull market remains intact at this point, if any scrip from the largecap space or midcap space with promising fundamentals is trading below its 200-day moving average, it can be considered as an investment opportunity,” said Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in.
“We advise traders to read 200 DMA only as one a tool to gauge long-term trends, but not as a trading tool, unless a particular scrip has a history of testing its 200- day moving average and bouncing back. Often, we find scrips or indices yo-yoing around these averages which don’t help take a near-term trading call,” Mohammad said.
NSE’s Nifty index traded almost flat at 11,300 in morning deals on Wednesday.
In the recent corrective move that the market has seen after marking a high at 11,760, there were many stocks ruling at or below their 200-DMAs. These stocks present an attractive opportunity for value purchase. While doing so, investors need to exercise some discretion, said Milan Vaishnav, Technical Analyst, Gemstone Equity Research and Advisory.
“Not all such stocks that rule below 200-DMA may off ..