• : May 16, 2021
  • : B. Krishnakumar
 
Nifty 500 Index: Some Observations
 
This week, I wanted to take a quick look at the Nifty 500 index. While the Nifty 50 index has been drifting lower in the past few months, the action has shifted to broader markets with mid and small cap stocks flying around. Let us do a quick status check on the health of the Nifty 500 index.

Here is the daily chart of Nifty 500 index along with the breadth indicator plotted in the lower pane.



The Nifty 500 index has been consolidating in a range since March 2021. This consolidation has helped the breadth indicator has cool off from overbought region. If you look at the slightly longer-term breadth indicator (% of stocks above 200-day moving average), the reading is overbought at 86%.

Let us also take a quick look at the Renko charts to get a better idea about bigger time frame chart structure.



The Nifty 500 index has seen a dramatic rally which has pushed the prices away from the moving averages. The Disparity Index plotted at the lower pane is at historic highs from where the Nifty 500 index has gotten into a correction on earlier occasions.

The bigger time frame charts are suggesting a relatively overheated or overbought condition for Nifty 500 Index while in the short-term, the price is consolidating. It would be prudent to be cautious about taking fresh exposures in the broader universe as the bigger time frame charts suggest the case for a cool off. This cool-off could happen in the form of a prolonged sideways action, similar to what we have seen recently, or through a sharper downside correction.

Which way, it pays to be a bit cautious. The P&F DT-Percent breadth indicator is at oversold region at 16%. If you are a short-term trader, then wait for this indicator to recover to the neutral territory before considering fresh bullish breakout trades in the Nifty 500 universe.

But, considering the bigger time frame picture, do not think in terms of riding the trend. Try to take profits a bit more aggressively instead.

I would do an update to this post, if there is any change in my interpretation of the Nifty 500 index.