23% BSE 500 stocks now above their 200 DMAs, signal trend reversal

If historical instances of 2009, 2012 and 2020 were to go by, 20 per cent of BSE 500 stocks moving above their 200-day moving averages (DMA) in a weak market signal a trend reversal. At last count, 23 per cent of the broader index stocks were trading above this long-term moving average, thanks to 8 per cent rally on the index month-to-date, hinting at sharp upmove ahead, said JM Financial. The percentage stood as low as 10 per cent at the start of March.

The B5E500 index has declined from a high of 38,740 as observed on September 27, 2024 to a low of 30,967 as observed on March 3, a decline of 20 per cent in a span of five months. The index stocks breached below 10 per cent level (percentage of stocks above 200-DMA), only fourth time in the last two decades, after 2009, 2012, 2020. 

JM Financial’s Technical and Alternative Research team noted that the BSE 500 has recouped most of the declines observed in the month of February. 

"We believe the index has made a firm bottom at 30,967 levels and is poised for sharp up-moves over the next 1-6 months period. Any decline from the current levels should be used an opportunity to assume long positions in the broader market," the brokerage said. 

In 2020, the indicator dipped below 10 per cent on March 18, 2020 while reversing above 20 per cent on May 29, 2020, Post that, the BSE500 index was up 10 per cent in the next one month. It did not make any low below the levels observed on May 29, 2020.

On a 3-month basis, the index made a high at 21 per cent and did not break below the levels as observed on May 29, 2020, JM Financial noted. On a 6-month basis, the index made a high at 34 per cent and never crossed below the levels as observed on May 29, 2020. 

Similar instances were seen in 2012 and 2009.  For example, the indicator dipped below 10 per cent on June 24, 2008 and recovered above 20 per cent on April 13, 2009. Post that, the BSE500 index made a high at 10.1 per cent and low at minus 0.4 per cent

"On a 3-month basis, the index made a high at 46 per cent while failed to make a lower low as observed during the 1-month period. On a 6-month basis, the index made a high at 64 per cent while the low made on a 1-month basis was never breached," JM Financial said.