Nifty breaks below long-term average! 23 out of 50 stocks trade under 200-DMA
The Nifty50 index broke below 200-DMA for the third time in the last five trading sessions on Monday largely weighed down by negative global cues.
The index which fell nearly 4 per cent in September is struggling to hold above the long-term moving average on the first trading day of October, which suggests selling pressure at higher levels.
The Nifty50 index closed 207 points lower at 16,887 which is lower than its 200-DMA placed at 16,982. However, it is still trading marginally above the 200-Days EMA placed at 16,877.
“On the daily chart, the benchmark Nifty has formed a dark cloud cover formation, suggesting a bearish reversal. Besides, the index has fallen below the 200-DMA, which is again a bearish setup,” Rupak De, Senior Technical Analyst at
Not just Nifty50 but 23 out of 50 stocks in the index are trading below the 200-DMA as on 3 October 2022, data from Trendlyne showed.
The 200-DMA is widely tracked by traders to understand the long-term trend for the underlying which could be a stock or an index. It represents the average price over the past 200-days.
As long as the stock/index price is trading above the 200-DMA the trend is largely considered as an uptrend and vis-a-versa if it starts to trade below this crucial moving average.
Stocks that are trading below the 200-DMA include names like
, , , , , Cements and .
What should investors do?
On the technical front, the Nifty50 index has tumbled below the swing high of 16,793 and is seen consolidating near the 200-DMA. The short-term trend is still on the downside, but a technical bounce back could be in the offing, suggest experts.
Momentum indicators RSI (14) and the stochastic oscillator both have slipped into oversold territory on the daily scale.
The level of 16,800 could act as a make-or-break level. A close below this level could take Nifty50 towards 16,600-16,300 levels, respectively. Resistance is still placed above 17,000-17,200.
“The RSI is in bearish crossover and falling towards the oversold zone. On the lower end, the index has support at 16,800, a decisive fall below 16,800 may take the Nifty towards 16,600/16,300. On the higher end, resistance is visible at 17,000/17,200,” highlighted De.
After a strong bounce back seen on Friday, the Nifty50 lacked follow-through buying on October 3. “It witnessed downside pressure throughout the day and formed an Inside bar pattern on the daily chart,” Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by
In terms of the Fibonacci retracement, it retraced nearly 78.6% of Friday’s rise where the key Fibonacci level acted as a support near 16,840.
“The overall structure shows that the index has stepped into a short-term consolidation mode and can see consolidation near 16,800-17,200. The internal structure shows that a move towards the upper end of the range is likely in the coming sessions,” suggests Ratnaparkhi.
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