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90% of India’s Top 500 Stocks Trading Above 200-DMA: Time to Press the Sell Button
Market Analysis: 90% of India’s Top 500 Stocks Above 200-DMA
Market Analysis: 90% of India’s Top 500 Stocks Above 200-DMA
The stock market in India is showing signs of nearing overbought levels, with about 90% of the top 500 stocks trading above their 200-day moving averages (DMAs). While this is generally considered a positive sign, it also indicates that the market breadth is in the overbought territory. However, it’s important to note that this doesn’t necessarily mean individual stocks are in an overbought zone, as this would be reflected by momentum indicators like RSI and MACD. Extreme readings of the percentage of stocks above 200-DMA have historically resulted in short-term reversals. The market has witnessed fluctuations in the percentage of stocks above the 200-DMA, with previous instances of both oversold and overbought conditions. Technical analysts have noted that the trend has been in favor of bulls, and as long as this scenario is accompanied by healthy momentum, the upward rally should not face substantial challenges. However, there are warnings about the susceptibility of the market to significant correction, making the risk-reward ratio materially adverse.
Key Takeaways:
- About 90% of India’s top 500 stocks are trading above their 200-day moving averages (DMAs).
- While this is generally considered a positive sign, it also reflects the market breadth hovering in the overbought territory.
- Extreme readings of the percentage of stocks above 200-DMA have historically resulted in short-term reversals.
- The trend has been in favor of bulls, and until this scenario is accompanied by healthy momentum, the upward rally should not face substantial challenges.
- The market is susceptible to a significant correction, making the risk-reward ratio materially adverse.
The information provided in the synopsis suggests that about 90% of India’s top 500 stocks are trading above their 200-day moving averages (DMAs). This is a technical indicator commonly used to understand whether the underlying security is in a bullish or bearish trend. However, it’s important to note that while the majority of stocks trading above their 200-DMAs is generally considered a positive sign, it also reflects the market breadth hovering in the overbought territory. This means that the market may be reaching overbought levels, which could potentially lead to short-term reversals.
Gaurav Bissa of InCred Equities mentioned that while the majority of stocks trading above their 200-DMAs is a good sign, it doesn’t necessarily indicate that individual stocks are in an overbought zone. The overbought condition of individual stocks is typically reflected by momentum indicators like RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence).
It’s also worth noting that extreme readings of the percentage of stocks above their 200-DMAs have a history of resulting in short-term reversals, as mentioned by Gaurav Bissa. For example, back in March 2023, about 33% of BSE500 stocks were trading above the 200-DMAs, indicating that the market was in the oversold zone. Since then, the market has witnessed a sharp recovery. Similarly, in September, 88% of the stocks were trading above the 200-DMAs when Nifty hit record high levels, but the following month saw some correction after which the ratio went down to 76%.
Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox, mentioned that while the moves in the market may appear exaggerated, with 90% of stocks in BSE 500 trading over their respective 200-DMAs, the underlying momentum has remained highly robust. This indicates that the trend has been in favor of bulls, and as long as this scenario is accompanied by healthy momentum, the upward rally should not face substantial challenges.
Amit Kumar Gupta of Fintrekk highlighted that the Nifty is trading 10% higher than its 200-day exponential moving average (200-EMA). He mentioned that historically, whenever Nifty has deviated over 10% from its 200-EMA, it tends to revert to the 200-EMA, although not always immediately. This suggests that there may be a tendency for the Nifty to revert to its 200-EMA in the future.
In summary, the information provided indicates that while the majority of India’s top 500 stocks are trading above their 200-DMAs, signaling a bullish trend, there are indications that the market may be reaching overbought levels. It’s important to consider additional momentum indicators and historical patterns to make informed decisions about pressing the sell button.
FAQ
Q1: What does it mean for a stock to be trading above its 200-DMA?
A1: When a stock is trading above its 200-day moving average (DMA), it is generally considered to be in a bullish trend. This is because the 200-DMA is used to understand whether the underlying security is in a bullish or bearish stand.
Q2: Should I sell my stocks if they are trading above the 200-DMA?
A2: The decision to sell stocks should not be based solely on whether they are trading above the 200-DMA. It’s important to consider other factors such as individual stock performance, momentum indicators like RSI and MACD, and overall market conditions before making any selling decisions.
Q3: What are the potential risks associated with a high percentage of stocks trading above their 200-DMAs?
A3: A high percentage of stocks trading above their 200-DMAs can indicate overbought market conditions, which may lead to short-term reversals. It’s important for investors to be cautious and consider the overall market momentum and potential for significant corrections.
