Moving averages are tools for analysing the moving trend of a stock or an index.
It’s becoming tougher to make money on Dalal Street as foreign institutional investors (FIIs) continue to sell stocks and global cues remain unfavourable.
Technical charts are depicting a bleak picture, as 350, or 70 per cent, stocks from the BSE500 basket are trading below their 200-day moving averages (DMA).
Stocks trading below this crucial support line include Adani Power, Aditya Birla Fashion, Ceat, Blue Star, Dilip Buildcon, Crisil, Eveready Industries, Hindustan Zinc and PNB Housing Finance.
Moving averages are tools for analysing the moving trend of a stock or an index. They provide useful information on support and resistance points.
Even on the BSE Sensex, 17 stocks are trading below their 200-DMAs. They include Axis Bank, Coal India, L&T, Tata Motors, Tata Steel, Vedanta, Wipro, NTPC, ICICI Bank, Adani Ports, ONGC, Power Grid, State Bank of India, Bajaj Auto and Bharti Airtel.
Market participants use three major indicators, 50-, 100- and 200- DMAs to read the direction of a security. When a stock trades below all the DMAs, it is usually said to be in a continuing downtrend.
Just because a stock trades below its 200-DMA does not mean it is in a bearish trend. It just implies that the stock is undergoing a major corrective move.
During corrective moves, stocks often come off their highs and slip below moving averages. Shallow corrections make stocks test their 50- or 100-DMAs, but any serious correction may cause a stock not only test its 200-DMA, but also slip below it.
ADVERTISEMENT
Avanti Feeds, Sheela Foam, Somany Ceramics, Sterlite Technologies, Sun Pharma Advanced Research Company, SpiceJet, Shankara Building Products and Sadbhav Engineering are among the stocks trading well below their 200-DMAs.
The benchmark BSE Sensex added 0.29 per cent last month, while BSE Midcap and Smallcap indices have slipped up to 7 per cent. On the other hand, the BSE500 index is down 1.61 per cent in June.
