NIFTY50 index breaches the 200-DEMA: What does this market breadth indicate about the NSE benchmark index?

In October, due to rising geopolitical tensions, tepid quarterly earnings, and a tactical shift from FIIs to other emerging markets, which offered valuation comfort, the benchmark indices slipped more than 6%. NIFTY50 registered the highest monthly fall of 6.22% in October since March 2020.

A disappointing earnings season and massive foreign outflows worth about $15 billion in the last 33 sessions hurt investor sentiment. Further selling pressure in the markets might be expected as the benchmark NIFTY50 confirmed a technical correction on Wednesday, dropping over 10% from record high levels breaching 200-DEMA.

Currently, NIFTY50 is trading near 23,500. Considering the NIFTY50 index is on the verge of deciding the bullish or bearish phase. Let’s understand, from the lens of a popular breadth indicator, how the constituents are placed.

Market Breadth Analysis (NIFTY50)

The number or percentage of stocks trading above their 200-day exponential moving averages (DEMA) is a widely used breadth analysis to determine whether the underlying sector/index is bullish or bearish.

Below is the chart of the NIFTY50 index, along with a chart in the lower pane that shows the percentage of stocks trading above 200-DEMA.

Percentage of stocks above 200-day EMA (NIFTY50),

Among the 50 constituents of the NIFTY50, 48% or 24 stocks are trading above their respective 200-DEMA as of November 14, 2024.

As of Thursday, only six stocks are trading above the 20-day exponential moving average, Five stocks are trading above a 50-day exponential moving average, and 24 stocks are trading above the 200-day exponential moving average amongst constituents of NIFTY50.

As shown in the chart given below, the market breadth seems to be weak since the peak of September. The market breadth of NIFTY50 has dropped this much for the first time in the last one year, where 24 stocks (almost 48%) are trading above 200-DEMA.

NIFTY50 - Number of Stocks Trading above 20, 50 and 200 DEMA

Market Breadth Analysis (Nifty 500)

Looking at a broader picture (Nifty 500), as of Thursday, November 14, 2024, 70 stocks are traded above the 20-day exponential moving average, 83 stocks trading above a 50-day exponential moving average, and 216 stocks are trading above the 200-day exponential moving average are amongst constituents on Nifty 500.

As shown in the chart below, the market breadth of the Nifty 500 index has also been weakening, with 216 stocks (43.2%) trading above their respective 200-DEMA. Yesterday, the Nifty 500 marked its lowest breadth, with 210 stocks trading above 200-DEMA, registering the first instance in the last one year.

Nifty 500 - Number of Stocks Trading above 20, 50 and 200 DEMA

The NIFTY50 index has tanked over 6.22% in October 2024, registering its sharpest decline in one month since March 2020. The index is down by more than 10% from its all-time high, which is a sign of correction in technical analysis terms. The sharp fall index is mirrored in the market breadth analysis as well. More than 50% of NIFTY50 and Nifty 500 constituents slipped below their respective 200-DEMA, indicating excesses are being erased and stocks coming back to their comfort zone.