Over 360 stocks in Nifty500 trading below 50 & 200-DMA; what should investors do?

The Nifty50, which reclaimed its 50-days moving average also known as short-term moving average on Thursday, gave up most of the gains and closed sharply lower on Monday.

The Nifty50 broke below its crucial 50-DMA on May 4 placed around 9,800 levels. The last time when the index traded above this crucial level was in February 2020. Not just Nifty but there are over 70 percent of the stocks in the Nifty500 index that are trading below their crucial short term (50-DMA) as well as the long term moving average (200-DMA).

There are as many as 361 stocks in the Nifty500 index that are trading below their 50-DMA, and 200-DMA. These include MRF, Shree Cement, Page Industries, Bajaj Finserv, UltraTech Cements, HDF AMC, Bajaj Finance, Maruti Suzuki and Bosch, data from AceEquity showed.

Note: Here is a list of 50 stocks out of 361 in the Nifty500 index that are trading below 50, and 200-DMA.

The 50-DMA is popularly used by technical chartists to identify the trend. A close above 50-DMA and if Nifty50 manages to sustain above these levels could have open doors for the index to march towards 10,000.

The moving average is used commonly by traders to interpret the trend. A move below 50-DMA is considered bearish in the intermediate-term or a trend change towards the downside while a close above the same is considered a bullish sign.

Technically, the Nifty50 formed an ‘Island Reversal’ pattern on the daily charts on Monday which is a reversal pattern, and the next big support for the index is placed at 9250, and below that 8900-8800, suggest experts.

“The Nifty50 appears to have reversed its trend with an Island Reversal formation perhaps owing to weak global cues which were accompanied with a further extension of lockdown,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, at Chartviewindia.in told Moneycontrol.

“Technically, indices should remain under pressure unless they close above 9732 levels. In such a scenario all pull back attempts towards 9500 levels shall be considered as an opportunity to create fresh short positions,” he said.

Mohammad further added that some support on the downside can be expected around 9250 levels and breach of this minor support shall drag it down towards its near term critical support of 8900 levels breach of which shall confirm bigger downsides for this market.

What should investors do?

The Nifty50 moved up sharply in April largely on news about a possible breakthrough in a drug that could cure COVID-19 patients. The Nifty50 rallied by over 14 percent in April and the majority of the gains were seen in the last week.

The Nifty had moved up sharply over the past few weeks by about 30 percent from its panic bottom of 7,500 to closer to 9,800 levels, but fundamentals of the economy were still weak and investors were looking for a trigger to book profits.

Expectations of further escalation of a trade war between US and China, grim economic data back home, recent earnings from India Inc. have not been inspiring, zero sales in the auto sector, rise in COVID-19 cases in India and across the globe, as well as the extension of lockdown are some of the factors which weighed on sentiment.

Experts feel that traders should focus on stock-specific opportunities as volatility is likely to remain high.

“Going ahead, all eyes would be on further development with respect to Donald Trump’s threat. In case of further escalation, we may see Nifty correcting towards 9100 - 9000; whereas on the flip side, 9390 followed by 9450 would be seen as immediate hurdles,” Sameet Chavan (Chief Analyst-Technical and Derivatives, Angel Broking) told Moneycontrol.

“As of now, we hope things do not worsen from here and Nifty manages to find support in the zone of 9250-9200 levels. Traders are advised to stay light and keep a close eye on the above-mentioned scenarios,” he said.

Chavan further added that at present, individual stocks are providing good trading opportunities and hence, it’s advisable to focus on such potential candidates.

Arun Kumar, Market Strategist, Reliance Securities recommends stocks such as Aarti Drugs, Alembic Pharma, Aurobindo Pharma, Biocon, Cadila Healthcare, Cipla, Divis Lab, Dr.Reddy’s Lab and Lupin which have good setup from a long-term perspective.

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