Nifty back in a Trading Range

July 28, 2021

The market has moved into a sideways trading range again. Post making new highs Nifty has traded sideways for over a month now.

While the Indian market has displayed a great deal of resilience compared to other markets, we're yet to see positive breadth thrusts and moves.

Let's take a look at what the breadth analysis is pointing at, given the current market setup.

Breadth analysis helps us understand the underlying trend better. In order to do that, we dig deeper and check what the index constituents are doing (or for that matter, not doing) in any given market conditions.

We're happier going through more charts if it gives us any sort of clarity or signals. And breadth analysis generally does that.

Let's take a look at the chart below, and keep in mind we're talking about Nifty 50 here.

Click on the chart to zoom in.

What do we see here?

Not a lot in the topmost panel, but it's the panel at the bottom that we're focusing on. Over the course of this month, we noticed that the percentage of stocks making 52-week highs has been dwindling. We're down to single digits, at a time when the index is making new highs.

Not the best sign, to be honest. When the index is trading at highs, you want to see an expansion in highs, not a contraction. Notice the breadth thrusts that we saw in February-March this year when Nifty made new highs. That's the kind of move you'd want to see in a strong market.

Let's take a look at shorter time frames as well. Stocks will always show up first in short-term scans and then move to long-term scans.

Above, we're looking at a 6-month time frame. But just as the chart we saw earlier, the percentage of stocks making 6-month highs has been going down.

What about a lower timeframe?

Now there's some added information here. In the chart above, take a look at the top pane.

Now take a look at the top panes in all the charts.

See anything different?

In the 63-day time frame, we're seeing signs of an expansion in the percentage of new 63 day lows. That is something to keep on the radar. A 63-day timeframe would essentially be a 3 month period. So if over a particular quarter, the expansion in lows increases, that trend becomes stronger and spills over into the higher time frames as well.

What is the message for us in these charts?

The idea is to continue tracking them carefully. Signs of weakness or strength develop under the hood first and then translate into a bigger trend.

It is therefore important to make sure that these internals are studied well and studied regularly.

Let us know what time frame you're looking at, we love to hear from you!

Allstarcharts Team