The Indian market has been under pressure due to rising COVID cases, fears of US Fed rate hikes, high valuations and profit taking. This situation has continued since October, when the benchmarks last hit their respective records.
See Zee Business Live TV Streaming below:
The Nifty50 has fallen more than 7% from the recent high of 18606 recorded on October 19, 2021 and is trading below crucial moving averages such as 30, 50 and 100 day moving averages.
The Nifty50 is still trading above its long-term moving average set at 16,142, but there are 188 stocks in the S&P BSE 500 Index that are trading below this crucial long-term average – a possible sign of a trend reversal.
There are 5 stocks that have more than doubled their wealth in the past year are also trading below their respective 200-DMA. The list includes names like Hindustan Copper, Intellect Design, HEG, MMTC, and Alkyl Amines Chemicals.
The 200-day moving average is used by market participants to determine long-term trends and is one of the popular indicators for studying long-term price behavior.
Even though the price may have fallen below the crucial long-term moving average, analysts are advising investors to stay put and make profits where the quality of management could be called into question.
A close below 200-DMA suggests that the underlying which could be a stock or index has reversed the trend or entered a downtrend.
“In a bull market the 200-DMA acts as a strong support, but sometimes stocks slide below their 200-DMA and we cannot generalize that if stocks slide below their 200-DMA, we should leave it, “Santosh Meena, Head of Research at Swastika Investmart Ltd, said.
“Investors should exit stocks that have quality issues and look to high-quality stocks with better growth prospects and reasonable valuations, because money cannot be made in a bull market by staying in the market. affects due to short-term volatility, ”he said. .
What Should Investors Do?
Almost 200 stocks in the S&P BSE 500 Index trade below the long-term moving average, and most stocks are in the small to mid-cap space.
A close below 200-DMA should be taken as a sign of caution, but it should not be construed as a call to sell. Investors may consider reducing their exposure and should assess other metrics before hitting a buy or sell button.
“Stocks that have provided phenomenal short-term returns tend to experience higher volatility in the correction phases. At a minimum, you have to reduce exposure to those stocks which are prone to higher volatility and fall into the mid / small cap category, ”said Ruchit Jain, head of research, 5paisa.com.
The 200-day moving average is used by market participants to determine long-term trends. It helps traders identify potential areas of support or resistance.
“Investment decisions should not be made on the basis of this average alone. Price movement should be analyzed with its recent volumes and only stocks where volumes are high rising and low correcting could be good buying potentials around their 200 DMA, ”he said.
Technically, the 200-DMA is a very critical support level as most institutional investors like to pile their favorite stocks around this level. Historically this level has acted as strong support and a strong rebound can be seen around this level as well, experts suggest.
“In a strong bull market, the 200-DMA acts as a very strong support for any significant correction and it is generally considered that if a stock slips below its 200-DMA, the overall trend has turned weak in the short term,” says Meena of Svastika Investmart Ltd.
“200-DMA alone cannot help you get the right trend because sometimes many stocks fall below their 200-DMA if there is a strong correction in the market. You have to look for other levels of support and price action as well as some understanding of the fundamentals, ”he said.
(Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)