23 April 2011

Market Breadth : Turn In Tide?


The above chart shows Nifty (futures) against 10 day moving average of Advance - Decline of the F&O segment of NSE. I have talked about what the basis of using only F&O stocks earlier as well. So would be focusing on how it had been predicting weakness and strength in Nifty.

Check the first shaded area from late November to end of December. After the strong sell off in early November, Nifty rallied from 5800 to almost 6200 on closing basis, though the Adv-Dec line shows continuous weakness in breadth. That is, more stocks were declining than advancing even though Nifty was rallying. We can easily say that focus of buying was only on blue chip, while the others were getting sold.

Then came the period of fierce sell-off. But here as well in later half of selling, you see that Adv-Dec line made a higher low, when Nifty made a new low. Signs that blue chip were sold while there was value buying happening in the broader market. Interestingly Nifty followed a rebound.

What we also notice is that since the high made in early April, though Nifty is range bound, we see our indicator rolling over and has fallen below 0. (check what happened when it did that last time!) A very strong signal that people are losing faith in the broader market again. And all we need is a trigger to pull Nifty along with it.

2 comments:

alphabet1 said...

can you post Mclellan Oscillator also, maybe it gives similar indications. I think "RM" has AFL code for same.

Tarique Anwar said...

sorry bro.. i dont have that chart, but as a matter of fact i have tried to create this indicator on the lines of Mclellan indicator.. only my breadth is restricted to fno stocks.. whereas mclellan uses the entire market..

there are over 2000 stocks that are traded in NSE.. 50% of them are so thinly traded that they tend to exaggerate the data.. either on the upside when market rallies or downside when market falls.. also i would tend to believe that this indicator should be mimicking Mclellan..

Post a Comment