• : August 3, 2019
  • : Prashant Shah
  • : Definedge Research

Nifty & Sectors: Breadth, RS & Seasonality analysis

Advance-decline ratio is a popular breadth indicator. The chart below captures the percentage of Nifty 50 stocks that registered an advance in the monthly time frame.

BRS

For the month of July 2019, the advance ratio was less than 15%. In other words, almost 85% stocks have declined in July 2019.

Below is a chart showing Advance ratio of last week of all NSE sectors and indices.


BRS

Most of the indices are below 20%. Meaning, 80% stocks on most of the sectors are declining.

The chart below displays the breadth of all NSE groups put together from a medium-term perspective.

BRS

The breadth ratio in the above chart is 20% indicating that over 80% of sectors and indices are bearish over medium term.

Below is a medium term breadth chart of Nifty 50.

BRS

The indicator is below mid-value but in neutral zone. It shows that only around 30% stocks are bullish on medium term price chart. Below mid-value meaning most of the stocks are bearish. Neutral would mean:

1 – Still a room for the downside and bearish breakouts can still be productive.
2 – Divergence: Nifty price chart is very bearish but breadth is not in oversold zone.

What to read from above?


Let us increase the brick-value of breadth indicator to check the scenario on long-term basis. Featured below is the chart capturing that.

BRS

We have seen this kind of picture during March 2018 and Oct 2018 in the recent history. Price witnessed good recovery post such scenario. But it can remain around same levels and Nifty continue to fall. 

In nutshell, the breadth charts are showing huge decline across sectors. That has two potential interpretation:

1 – Trend across the stocks and sectors is bearish, almost everything is falling, and the downtrend is strong and well-established.
2 – Markets are in an oversold zone.

Let’s have a look at performance of the Sectors.

Below is a chart showing performance of all sectors during last week.


BRS

Only IT and GS composite were positive!

Below is a performance chart of major market indices post 1st Jul 2019.

BRS


There are three instruments positioned above Nifty. They are Nifty Alpha 50 index, Nifty Next 50 index (though both are negative) and Nifty GS composite (only positive average).

Before we discuss the sectors further, let’s have a look at seasonality data.

Below is a month wise performance data of Nifty.

5_BRS

August has been historically quiet.

Below is average performance of all sectors for the month of August.

RS

Below is a data showing positive month ratio of all sectors.

5_BRS

IT, Private banks, FMCG, Pharma, Metal, Consumption and Auto have performed well during August months.

But this is seasonality analysis based on past data. This time can always be different!

Below is a table showing last week performance of every sector vs Nifty.


BRS

Media, Metal and most of the sectors contributed to the Nifty downside. IT, FMCG, Consumption and service sector have shown the signs of strength!

If we analyse the relative performance in the short-term, most of the charts are bearish.

When everything is falling, it will be reflected in two types of charts – First, bearish on all timeframes and complete weakness. It would not be such a nice idea to hunt for bottom in such cases. We cannot be sure how far the prices can slide. And trying to find reversals in them can prove to be dangerous because supports are meant to be broken in a downtrend. And reversals in a downtrend can be a short-term pull back and temporary in nature. But second type of charts are those showing strength in long-term but witnessing correction.

Let’s have a look at multi-timeframe relative performance. Below is a chart of price matrix multi-timeframe analysis. We score chart patterns on different timeframes analyse. Score of -8 is underperformance on all timeframes. And score of +8 is outperformance on all timeframes.

RS

Financial services, IT, Banks and Service sector have positive scores when we see them on multi-time frame. These are the averages underperforming in short-term but overall relative performance are still bullish in higher time frames.

Below is a chart showing performance of each sector against every other sector in the medium-term.  It is a true picture of relative strength because performance of every sector is being compared with the performance of other sectors.

BRS

Consumption, IT, FMCG, Service sector etc are showing the strength in the medium term.

Below is a price chart of Nifty.

BRS

 
  • Price is trading around 45-degree trend line support.
  • Anchor point support zone around 10800.  
  • At previous peak (polarity principle).
  • But extremely bearish anchor column makes it a bearish chart – any bounce can turn out to be temporary in nature.
  • If you are holding shorts then continue to do it. For fresh shorts, wait for the follow-through to occur.
Below are the price charts of a few sectors with support zones for reference. But price pattern confirmation is more important and trading without price confirmation could be suicidal.


BRS

BRS
BRS

BRS

In nutshell:

 
  • Trend is down and well-established. In this environment, It would be better to look at resistances in a downtrend rather than at supports.
  • Continue to trade negative breakouts but follow aggressive exits till breadth charts are in the oversold territory. 
  • Markets are in extremely oversold zone, but there is some more room to the downside. If there is a short-term reversal refer to sectors discussed above that have displayed strength recently when the markets were bearish.
  • Refer to Ultimate matrix of sectors to know leading and dragging stocks of outperforming and underperforming sectors respectively.