Manic Monday impact! Not just Nifty but 34 stocks trading below crucial 50-EMA; do you own any?

The Nifty50 and Sensex which saw their worst fall since April slipped below crucial short-term moving average on Monday.

The Nifty50 fell 348 points to close at 17416 while the S&P BSE Sensex fell 1170 points to close at 58,465 on Monday which is lower than the respective 50-Days Exponential Moving Average placed at 17,714 and 59,422 respectively, Trendlyne data showed. The 50-DMA is placed at 17,850.
 
50-Days Exponential Moving Average is a crucial support. It is usually considered to be the first line of support for any stock or an index that is in an uptrend.    

Exponential moving average is very similar to Simple Moving Average, the difference being that it assigns more importance to latest data, said an NSE note.

This is done by assigning weights to the data points under considerations, such that a more recent data point gets an exponentially higher weightage than older data points.

“Nifty witnessed closing below its 50-DMA means momentum is in favor of bear. FIIs are selling continuously in the Indian market as they feel valuations are stretched; however, they still have a long-term bullish view on India,”  Santosh Meena, Head of Research, Swastika Investmart Ltd, said.

“Technically, Nifty witnessed the breakdown of head and shoulder formation that is a sign of the first meaningful correction where rising 100-DMA around 17100 will act as an immediate and strong support level,” he said.

Meena further added that the Nifty tried to hold the 17300-17250 support zone in late trade, but it is vulnerable to fall again at any pullback where 17500 is an immediate hurdle while 17600 will act as a critical hurdle.

The 100-SMA for Nifty50 is placed at 17020, and the 200-SMA is placed at 16002, Trendlyne data showed.

Not just Nifty50 but there are 34 stocks or nearly 70 per cent of the stocks in the index that are trading below their respective 50-EMA.

Stocks that are trading below their short-term moving average include names like Shree Cements, Nestle India, Bajaj Finance, Bajaj Finserv, RIL, Kotak Mahindra Bank, Tata Steel, TCS, Britannia Industries and HDFC Bank etc.

What should investors do?

Bears remain in control of D-Street as investors lose nearly Rs 8 lakh cr in terms of market capitalization in a single day.

Experts advise investors to cover short positions if any and wait for further signals. The index is likely to find support near 17100-17200 levels while on the upside 17550-17700 are likely to act as stiff resistance levels.

The Nifty50 witnessed selling pressure which accelerated as the day progressed amid weak global cues. The index sneaked below the important supports and even breached the 17300 mark for the first time in last two months.

“During last week, Nifty formed a ‘Head and Shoulders’ pattern and the index has ended around the neckline of the pattern. The level of 17700 was an important support and as that was broken today; there was a complete gush to sell stocks in the broader markets,” Ruchit Jain, Trading Strategist, 5paisa.com, said.

“If we look at the weekly charts, it is observed that in this uptrend since June 2020, Nifty has always managed to find support around its’20 weeks EMA’ in corrective phases and has resumed the uptrend. This average is now placed around 17200 and it would be interesting to see whether the index repeats the history or not,” he said.

As of now, considering this support range of 17200-17250, we advise to cover shorts positions in this range and look for further signals. On the higher side, 17550 followed by 17700 would now be seen as immediate resistances.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)