Amid incessant selling pressure that took the Sensex down more than 8% since early March, the benchmark index on Monday closed below its 200 Day Moving Average (DMA) for the first time since September 2013. On Monday, the 30-share Sensex lost 261 points, or 1% of its value, to close at 27,176.99, below its 200-DMA, 27,482.41. Even the broader Nifty breached below its crucial psychological support level of 200-DMA placed around 8,250 levels.
Nifty’s fall below its 200-DMA was its first in nearly 15 months. The index declined as much as 1.2% in trade on Monday to break its 200-DMA average of 8,254.17 for the first time since February 6, 2014.
Given the importance of this long-term trading indicator, the bearish sentiments in the market appear to be getting intensified.
DMA represents a daily rolling simple average of the closing price of a security over a specified period. Lower duration DMAs represent a near-term trend, while higher duration DMAs reflect a long-term trend.
An underlying security’s relative position to its 200-DMA indicates the trading sentiment towards the stock; it is considered bullish if the stock quotes above its 200-DMA and bearish if it’s below this benchmark.
Further, for an index like the Nifty, a fall in the number of its constituents trading above this indicator may precede the overall change in the market trend. For example, between October 2010 and mid-January 2011, the decline in this number led the market plunge. The Nifty constituents, which managed to stay above their 200 DMAs, fell drastically from 96% to just half of total constituents.
Currently, half of the Nifty constituents (26) are trading below this market pointer. Some of the index heavyweights that have fallen below their respective indicator include State Bank of India (SBI), Reliance Industries (RIL), ONGC, ITC, ICICI Bank and BHEL.
For Updates Check Stock Market News; follow us on Facebook and Twitter