50% stocks in BSE 500 trade above 200-DMA: Should you buy?

Though the Sensex climbed Mount 34K and rose 1.7% in the week-ended April 13, the market breadth remained negative for most part of the week, with the advance-decline ratio skewed towards the declines.

Experts see the market remaining volatile in April thanks to escalating tensions in West Asia as well as a rise in crude oil prices which is trading above the $72/bbl mark. Back home, March quarter results from India Inc and Karnataka elections could add to the market volatility.

“Apart from the on-going geopolitical concerns and corporate result announcements, the market will now keep an eye on upcoming Karnataka assembly polls. Any new developments on that front will affect investor sentiment,” Gaurav Jain, Director, Hem Securities, said.

Hence, analysts advise investors to stick to momentum stocks, especially those trading above their long-term moving averages such as their 200-day moving average (DMA).

The 200-day simple moving average is more relevant to traders in determining the overall market trend. It is considered as a crucial support for the index or stocks in a falling market scenario.

However, it should not be the only filter used to select stocks to buy or sell. Analysts suggest investors use other technical parameters such as Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Supertrend Indicator, among other momentum indicators before placing one’s bet.

About 252 stocks in the BSE 500 index are trading above their 200-DMA. These include names like Eicher Motors, Nestle India, 3M India, Britannia Industries, Venky’s India, Hero MotoCorp, TVS Srichakra, Cera Sanitaryware, Bajaj Finserv, Indiabulls Housing Finance, among others.

Largecap stocks with a market capitalisation of over Rs 1 lakh crore and trading above their 200-DMA include Tata Consultancy Services (TCS), Reliance Industries (RIL), HDFC Bank, Housing Development Finance Corporation (HDFC), Hindustan Unilever (HUL), Maruti Suzuki India, Infosys, Oil and Natural Gas Corporation (ONGC), Kotak Mahindra Bank, Larsen & Toubro (L&T), Coal India and HCL Technologies.

Largecap stocks with a market capitalisation of over Rs 1 lakh crore but trading below their 200-DMA include ITC, State Bank of India (SBI), ICICI Bank, Indian Oil Corporation (IOC), Bharti Airtel, NTPC, Wipro, Sun Pharmaceutical Industries, Vedanta, UltraTech Cement, Tata Motors, and Power Grid Corporation of India.

The Nifty retested its crucial 200-DMA in March but managed to close above this crucial level at the start of April. If the Nifty retests its 200-DMA again on escalating geopolitical tensions, then market watchers see a higher chance of a retest of 10,100-10000 levels.

“The index remained below its 200-DMA only for a couple of days and then bounced back. A problem will arise in the long-term trend if the index settles below its long-term average a longer period of time,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said.

“Despite the Nifty testing its long-term average, some stocks bottomed out ahead of the market. Thus, sending a message that they have reached some sort of ‘value zone’ which attracts the attention of long-term investors,” he added.