NEW DELHI: The domestic equity market has entered a consolidation phase and the momentum indicators are indicating fatigue on the technical charts. Many of the stocks have slipped into the overbought zone and are hovering above their short-term moving averages.
As such, some 226 stocks on NSE look set to correct, according to moving average convergence divergence, or MACD. The momentum indicator signalled an downward crossover – a sign of bearish undertone – on these counters, hinting at possible downside.
Many of these stocks have also been witnessing strong trading volumes of late, lending credence to the emerging trend.
The list included lenders such as YES Bank, DCB Bank and Andhra BankNSE 1.18 %, telecom companies Vodafone Idea and Bharti Infratel, beverages maker such as Tata Global Beverages, United Spirits and United Breweries and NBFCs such as IFCI and Ujjivan Financial.
Ashok Leyland, Adani Enterprises, Zee Media, IRB Infra, Jain Irrigation, Voltas, HUDCO, Colgate-Palmolive, Avanti Feeds are some of the other stocks that have witnessed bearish crossovers, suggesting possible downsides on these counters.
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 just six stocks showed bullish crossovers on Monday’s daily charts. They included Jet Airways, Power Finance CorporationNSE -0.38 %, Coromandel International, Apar Industries, Cyber Media and Indo Thai Securities.
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.
For now, analysts are cautious on the market. Mazhar Mohammad of Chartviewindia.in advised traders to avoid fresh long exposure. Gaurav Ratnaparkhi of Sharekhan said traders may initiate short positions if the index enters the 11,400-11,450 range.
On Tuesday, the NSE barometer traded a tad below the 11,400 level at the time of writing of this report. “Structurally, Nifty is in for a significant correction. Traders are advised to adopt a ‘sell on rise’ strategy going ahead,” Ratnaparkhi said.
Meanwhile, daily strength indicator RSI and momentum indicator Stochastic are both in bearish mode, which means profit booking may continue in the near term.
A close look at the stock chart of Vodafone Idea shows whenever the MACD line has breached below the signal line, the stock has showed an downward momentum and vice versa. On Tuesday, the scrip traded 0.83 per cent down at Rs 30 on BSE.