NEW DELHI: It took just two sessions for Nifty50 to test the sub-10,600 level on Monday from an all-time high of 11,856 hit last Thursday. Friday was a public holiday.
While trading kicked off on a positive note on Tuesday, back-to-back selloffs seen in the previous two sessions made analysts believe the breakout signal triggered by the reclamation of the previous peak of 11,761 was probably false. If that’s so, outlook for over a hundred stocks would look weak, as suggested by various technical indicators.
Among them one is the momentum indicator moving average convergence divergence, or MACD charts, which is already signalling a bearish bias for 127 stocks on NSE.
The indicator showed bearish crossovers – a negative undertone – on these counters, hinting at possible downsides in the days ahead.
Many of these stocks have also been witnessing strong trading volumes of late, lending credence to the emerging trend.
The stocks on the list are from across sectors like financials, drug makers and consumers as well as firms due to unveil their earnings.
The list included Suzlon Energy, Dewan Housing (DHFL), Reliance InfrastructureNSE 1.42 %, BHEL, IDBI BankNSE -0.12 %, Tata Steel, Wockhardt, Strides Pharma, Future Consumer and JK Paper, among others.
Marksans Pharma, Dhanlakshmi Bank, J&K Bank, Tata Chemicals, SBI Life Insurance, CEAT, Dr Reddy’s Labs, JSW Energy, CESC and The Ramco Cement, too, are a part of the list.
Tata Global Beverages and ACC, which are scheduled to announce their quarterly numbers later on Tuesday, too, are part of this list.
The MACD is known for signalling trend reversals in traded securities or indices. It is the difference between the 26-day and 12-day exponential moving averages. A nine-day exponential moving average, called the signal line, is plotted on top of the MACD to reflect ‘buy’ or ‘sell’ opportunities.
When the MACD crosses above the signal line, it gives a bullish signal, indicating that the price of the security may see an upward movement and vice versa.
Data showed 18 stocks made bullish crossovers on Monday. The list included Gati, Quick Heal Technologies, Britannia IndustriesNSE -0.30 %, L&T Infotech and MonsantoNSE -1.37 %India.
The MACD indicator should not be seen in isolation, as it may not be sufficient to take a trading call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ recommendation using a single valuation ratio.
Traders should make use of other indicators such as Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and Stochastic to confirm an emerging trend.
“At this juncture, the ideal strategy would be to stay light on positions. It’s better not to pre-empt any kind of moves. Instead, one should try to adopt a confirmatory approach for a while,” said Sameet Chavan of Angel Broking.
He expects Nifty50 to find resistance at 11,653 and then 11,705 levels.
Gaurav Ratnaparkhi of Sharekhan believes the swing low of 11,550 holds the key for further move. “A breach of this level on a closing basis shall entail a deeper correction in Nifty50,” he said.
A close look at the stock chart of Suzlon Energy shows whenever the MACD line has breached below the signal line, the stock has shown a downward momentum and vice versa. On Tuesday, the scrip traded 2.90 per cent lower at Rs 6.60 on NSE.