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Charts & Analysis

MarketVision Chronicle: Breadth, Stocks Above Their Key MAs – April 2, 2011

In the last piece, I have spoken about valuation and breadth at the MarketVision Chronicle (Registration required, Free)

In The April 2 Chronicle, I speak of the number of stocks above their key moving averages and see if there is an indication that this sudden bull rally is only a short move (of the biggest stocks) or a broader, more interesting move.

(Read the full newsletter)

I’ve been talking about breadth for the last two weeks and today, we’ll again look at an interesting statistic: Number of Index stocks above key moving averages.

A moving average is usually significant in that it tells you whether the stock is above the average (bullish) or below (bearish). The number of days in the moving average can be small (short-term) or big (long-term). Key values are the 50 day moving average (DMA) and the 200 day moving average; you can think of them as the average price of a quarter and a year respectively.

In an index that has many stocks as its constituents, the number of stocks above and below their key moving averages might indicate the breadth of the move in the index itself. The Nifty, which consists of 50 stocks and is broader than the 30-stock Sensex, is still constrained in that three stocks – ICICI Bank, Reliance and Infosys – are responsible for more than 25% of the index itself, being weighted that way. So while the index might move a lot with just those three stocks showing up-moves, the index as a barometer of the stock market is only valid if the trend is more broad – that is, a large number of stocks are moving up.

Let’s see the number of stocks above and below the 50 and 200 DMA, on a 15 month chart, with the Nifty superimposed:

Stocks above 50 and 200 DMAs

Editor’s Picks


A set of external links chosen from our daily updated Editor’s Picks section.

Peston’s Picks: The unbelievable truth about Ireland and its banks (BBC)

Ireland’s central bank and new government will confirm on Thursday that the hole in the country’s banks is even wider, deeper and darker than seemed to be the case last…

Irish Banks Move Toward Nationalization (WSJ.com)

Ireland is on track to nationalize its banking sector after its government uncovered a €24 billion ($33.9 billion) capital shortfall in the latest round of stress tests of top banks.

Sarkozy jumps gun on renminbi (FT.com)

French president Nicolas Sarkozy said it was time the renminbi became a reserve currency in what an Associated Press report called “an urgent call to action” – despite Beijing’s insistence the issue was not on the meeting’s agenda.

Three costs that a financial product seller must sign off on (Livemint.com)

You need to think about costs in a market-linked product or one in which the returns are linked to an underlying asset such as stocks, bonds, real estate, gold or commodities. In its simplest form, a market-linked investment product carries three kinds of costs.

Mutual funds through demat has unnecessary costs and issues (Moneylife)

NSDL says smart investors choose the demat route for mutual fund. But the really smart investors would not want to waste their money, or get into unnecessary hassles which the demat system involves .

FDI Down by 30 % in February to USD 1.2 Billion (Outlook)

Foreign direct investment (FDI) in India registered its second consecutive decline in February, 2011, dipping by 30 per cent year-on-year to USD 1.2 billion in the backdrop of financial turmoil in Europe.

India State Firms Grab Lion’s Share Of Oil, Gas Blocks (WSJ.com)

Indian state-run companies provisionally bagged more than a third of the 34 exploration blocks offered in India’s ninth auction round, as global oil and gas majors continued to shun India as an investment destination.

 

Videos


We had two great Short Takes this week.

"What is Short Delivery?"

Can you buy a share and still not get it, two days after you purchase? And if you sell it without actually having it, what happens?

Deepak Shenoy takes you through:

  • The concept of short delivery
  • Auctions on the NSE
  • Why you get your shares four days later instead of just two
  • How you might be penalized for selling what you don’t own
  • Why this is important even if you are a "Buy Today, Sell Tomorrow" (BTST) trader.

(See Video, 7 min)

Conversations – Manish Jain: Tech, Advisors and Mega Deals

In a 20 minute free form conversation, Manish from MProfit speaks with Deepak from MarketVision talk about:
  • Technology and Trading in India
  • How Distributors have started to become Advisors and,
  • The Reliance – DE Shaw deal.

Manish and Deepak worked together briefly during Deepak’s Moneyoga days of building algo trading systems in Bombay. According to Manish’s twitter profile – he loves Cars, technology, finance, fitness and a certain fruit from Cupertino, Calif.  He moved to India 5 1/2 years back to focus on technology driven businesses. His latest venture is MProfit – a desktop portfolio management software.

(As a disclosure, there is no commercial relationship between our companies)

Visit MProfit at http://www.mprofit.in. Manish also writes at http://www.celestri.org.

(See Video)
Past Short Takes:

We’d love your feedback! Tell us at chronicle@marketvision.in.
Coding and Writing Furiously Before the Match,
Deepak and Shyam

The MarketVision Team
http://www.marketvision.in

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