Market Rise Amid Low Participation

June 2, 2021

We put out a post recently about the breadth indicators picking up bullish signals. This was when Nifty 50 was attempting to move past its earlier high of 15,431.

Well, what do we have now? In addition to keeping track of the participation in the general market scenario, it is increasingly important to track the same indicators when new highs are claimed.

Nifty 50 managed to move past its resistance, but what do the breadth indicators say?

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[show_to accesslevel="premium-india"]At important points in a market rally, it is imperative to check the source of of strength/weakness (depending on the market). So when the market makes new highs and sustains above those levels for a couple of days, we like to go through our indicators again.

This helps us understand if the move is broad-based or led by a handful of stocks.

Let us take a look first at the percentage of new 10-day Highs (considering the market is making new highs). The very reason that we're looking at the same charts like the ones in this post, is to point out how the breadth indicator can look different at various stages of a cycle.

What we see here is that while Nifty 50 has gone on to make a new all-time high, the breadth has actually deteriorated. Ideally, we'd like to see an expansion in breadth. That would give us more confidence in this move. But that's not the case.

Click on chart to enlarge view.

Up next is the percentage of 21-Day highs.

A similar trend can be seen here too. While the percentage of 21-day lows reduced, so did the percentage of 21-day highs. So in effect, although we saw the index mark new highs, the breadth hasn't been favourable. So the move, while positive, has come through a handful of names.

If this trend continues, it may become difficult for Nifty 50 to sustain at higher levels.

It is vital to see wider participation for this move to be successful.