Selloff deepens: 3 out of 4 NSE500 stocks slip below key indicator

Mumbai: The recent sell-off triggered by sharp foreign outflows amid rising inflation has pushed nearly 77% of the NSE500 stocks below their 200-day simple moving averages (SMA). When an index or a stock falls below its 200-day SMA, it signals that the security is in a bear trend and vice-versa. But some analysts see a prolonged weakness below the 200- SMA as a contrarian indicator that the market is nearing the bottom.

About 70 stocks, including , L&T Infotech, , InfoEdge, L&T Technology Services, , , SAIL, Zydus Lifescience, Lupin and , among others, are trading 25%-70% below their 200-day SMA, which is considered a significant level for an index or stock since it is a long-term average.

Analysts said the number of stocks below the 200-day SMA and the extent to which they are trading below this level could be signalling extreme bearishness, often seen as a contrarian indicator.

“As most of the stocks slipped below 200-day SMAs, we expect in next one or two weeks, the market is likely to see bottoming out process, and we may witness a sharp recovery,” said Rajesh Palviya, head technical & derivatives, Axis Securities. “Historical data also suggest whenever this kind of oversold situation arises market recovers sharply. We advise investors to buy stocks in a staggered manner to use this dip as an opportunity.”

The Nifty 50 has declined 11% since April 1 and is trading 8.38% below its 200-day SMA. Out of the Nifty 50 stocks, 39 including TCS, , , , , , HDFC, , and are also trading below their 200-day SMAs.

Analysts warn that extreme moves above or below the 200-day SMAs do not help timing the rebound. Investors must spread out their purchases in this situation, they said.

Chandan

, VP, said, “Traders are suggested to remain cautious, hedge position along with Call writing, and keep their position light. Investors are suggested to wait for more declines and then stability to accumulate these beaten-down names for positional point of view.”