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Analyzing Nifty 50 -Strength and Market Technicals

30
Dec

Nifty - Market Internal Analysis

“Learning Series” – Lets learn how market experts and professionals do internal analysis of Nifty and identify market strength.

  • “Step 1 -Check number of stocks making new highs and new lows, when Index (Nifty 50) is at new highs”

    This is because when market is making new highs, we would like to see number of stocks making new high should be significantly higher when compared to stocks making new low.

    For example- number of stocks making new high is 300 and number of stocks making new lows is 100. Means stocks making new highs are 3 times more than stocks making new lows

  • “Step 2 – Is Comparison, see the previous highs of the Index (Nifty 50) in the charts and check how many stocks have made new high and new lows, for detailed understanding, lets analyze the Nifty Chart attached above”

    Lets observe the Index Nifty-50 in the month Jan 2018, market is at 11100 levels, no. of stocks making new highs is around 500 and no. of stocks making new lows is 52, ratio of new high to new low is 10x i.e. no. of new highs are 10 times more than stocks making new lows.

    Now Lets observe the Index Nifty-50 in the month August 2018 end, market is at 11700 levels 5% higher compared to previous highs of 11100. But if you observe the stocks making new highs are 165 and no of stocks making new lows are 196, this is significantly low when compared to Jan 2018 data. The ratio of new high to new low is negative, new lows are more than no. of stocks making new highs. Hence its a reverse situation.

  • “Lets Summarize – we can clearly see the inverse relationship, even though the Index Nifty-50 is making new highs number of stocks making new highs are significantly coming down and number of stocks making new lows are increasing. Clearly a sign of caution for investors, “

  • “What Investors Should Do” –


    1. Make sure you select your stocks carefully.
    2. Equity investors may keep 30% to 40% cash in your equity portfolio, will help in case markets fall.
    3. This is clearly a sign of tough times ahead, markets may come down more than expected, may crash also and if it goes up, it will be a slow upward movement, as momentum is no more there.
    4. Since markets are volatile and may even come down, excellent time for mutual fund investors who are doing systematic investment plan (SIP’s), since they will average at lower levels.
    5. Hope this post will help investors to analyze market internals like professional do :-), feel free to share your feedback and comments below.