The Indian markets saw a strong start to the week as the headline index ended with a robust gain of 132.65 points (+1.20%). With this move, the index has once again begun to attempt a breakout. This being said, over the past several weeks, the market breadth has been an area of concern, as each up move that we witnessed while the markets remained range-bound came with fractured breadth.
For any market to enjoy a sustainable secular up move, it is very important that it comes with healthy market breadth. Putting the NIFTY, which might see some consolidation at higher levels, aside, let's examine the CNX500 chart, which suggests that we might be in for some stable market breadth over the coming days.
CNX500 is a broader market index; it is comprised of 500 stocks that represent over 95% of the floating market cap of all NSE stocks.
In the daily chart seen above, the RS Line appears to have reversed its downtrend and is now looking to inch higher. Additionally, it has penetrated its 50-DMA. The CNX500 has also penetrated the 200-DMA and has continued to move higher following a brief consolidation.
The index looks slightly overbought on RSI and Stochastic, which may cause it to consolidate. In any worst-case scenario, as long as the CNX500 holds at the 9100-mark, it will help market breadth stabilize and gradually improve.
Similarly, as seen on the weekly chart above, the CNX500 index hit resistance at the 50-Week MA for nearly 15 weeks and has now attempted a breakout. This 50-Week MA, which is presently at 9213, has acted somewhat as a proxy trend line. On the weekly charts, the MACD remains in continuing buy mode while PPO is positive. We should not read the weekly indicators as conclusive, however, as the week is incomplete and the final bar may change.
Overall, the 200-Day MA level of 9185 and 50-Week MA of 9213 are very important levels to watch for in the coming days. This means that, so long as the CNX500 index keeps its head above the 9200 level, the market breadth will not deteriorate. Any slip below the 9200 level will again cause cracks in the market breadth.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst