Close to 82% of Nifty constituents trading above their 200-day moving averages

Indian equities gained 10% in the past three months, becoming the best performer among the world’s top markets during the period and overtaking Switzerland in market capitalisation. The gain has also strengthened one of the important technical indicators — the 200-day moving average (or 200 DMA), which may act as a crucial support if market direction reverses.

The percentage of index constituents of the Nifty trading higher than the 200-DMA is among the highest in the top 20 equity markets by market capitalisation, according to the Bloomberg data. About 82% of the 50 Nifty constituents are trading above their 200-DMAs —the highest reading since December 2014. For the 30-stock Sensex, this reading is 86.67%.

For major global equity indices such as Dow Jones, FTSE, CAC 40 and DAX, this percentage stands at 66.67%, 57%, 25.64%, and 40%, respectively. Even in comparison to emerging markets such as Brazil, Mexico and Indonesia, which have surged due to a recovery in commodity prices, have lower index constituents trading higher than their 200-DMAs.

The 200-DMA is an average of any index of the last 200 trading days and viewed as a critical support level. If a stock is holding above its 200- DMA, it is officially seen as an up-trend. If it drops below the 200-DMA, it means the trend has turned. This vital support level matters for the trading strategy of high-frequency traders.

High frequency traders will aggressively double or triple the bets if the DMAs levels are breached. On an average, 61.39% of Nifty stocks are trading higher than 200-DMAs since the beginning of 2014. The Nifty is trading 6% higher than its 200-DMA of 7,830.