When an index or a stock trades below its 200-DMA, it points to a bearish trend and vice versa. The 200- DMA is considered a long-term moving average as it signifies a stock’s trend over the past year. A year has roughly 200 trading sessions.
Heavyweights such as HDFC Bank, Hindustan Unilever, Axis Bank, Tata Steel and Adani Port are currently trading below their 200-DMAs while the Nifty index closed below its 100-DMA on Friday.
“Stocks falling below their 200-DMA indicates short-term weakness and negative bias,” said Chandan Taparia, technical analyst at Motilal Oswal Financial Services.
About 180 of the NSE stocks are currently trading below their 200-DMAs. Of these, 61 are trading more than 10% below their 200-DMAs. Several heavyweight stocks have corrected by more than 10-20% from their recent highs. Bajaj Auto has declined 13% from its 200-DMA, while Axis Bank and Bharat Petroleum have plunged more than 10%. Hindustan Unilever and HDFC Bank currently trade 3% lower than the widely used gauge.
The Nifty has corrected by around 1,600 points from its top of 18,600 to 17,000 levels, about a 9% dip from the highs amid selling by foreign investors on worries about the strengthening dollar and tightening of liquidity by the US Federal Reserve.
Since 200-DMA is a long-term average, it is considered a significant support level for an index or stock. Experts warned that more stocks could fall into a bearish trend if the panic selling continues.
“The Nifty posted the biggest weekly decline in the last 10 months and is now trading below the crucial support level as well as the rising trend line, which had been supportive throughout the secular upmove,” said Yesha Shah, head of equity research, Samco Securities. “This can be interpreted as the price action confirmation for a pause in the ongoing major uptrend. We suggest traders maintain a bearish outlook on the market as there is downside potential after the recent bull run.”
