The average advance-to-decline (A/D) ratio has narrowed to 0.871 so far this month. The November’s ratio has declined from an average of 1.27 in the previous month, and it is the lowest reading since 0.821 seen in March 2020 when the Coronavirus pandemic induces a selloff in the world equities market, data showed. A falling ratio shows more stocks – mainly small-caps and mid-caps – are dropping than gaining.
“The market is showing signs of fatigue and that is visible in the breadth and market participation,” said B Gopkumar, MD, Axis Securities. “Client account volumes have slowed down in the recent past due to lack of triggers even as flows into SIPs remain strong.”
Analysts said the Nifty is facing resistance around 18,350-18,400 levels and this remains a key hurdle point in its path to new record highs. Benchmark indices fell nearly 1% on Monday, extending their run of losses for the third straight day as other Asian markets weakened ahead of the release of the minutes of the US Federal Reserve’s November meeting due on Wednesday. Worries that the new Covid-19 infections in China would delay easing of its tough restrictions also weighed down sentiment in Asia on Monday. In the past three sessions, the Nifty has declined nearly 1.5% and has the potential to fall another 1-2% in the near term.
Analysts said the declining advance-decline ratio shows a smaller set of stocks is keeping the market afloat.
“The advance-decline ratio is an important indicator on marketwide participation and that is currently showing a narrowing trend. This is also reflected in lower volumes as well as the price difference between large-cap stocks and the broader markets,” said Abhilash Pagaria, head, alternative and quantitative research, Nuvama Institutional Equities.
The Nifty is likely to see strong support around 17,700-17,500 levels, said Pagaria. The index closed at 18,159.95 on Monday.
The sentiment remains cautious in the near term. “The Nifty has been seeing selling pressure whenever it crossed 18,000 levels this year,” said Pagaria.
The Advance to Decline (A/D) Line, another related breadth indicator that calculates and plots the net cumulative difference between rising and falling stocks, is at its lowest in three years, indicating a deteriorating market breadth. This AD Line, which started showing an increasing divergence with Nifty around August last year, now shows the widest gap since then, data showed.
“The optimism surrounding indices to touch new highs have faded because the recent up moves have been selectively driven by large-cap stocks such as banks and financials while mid-cap and small-cap stocks continued to see a correction and range-bound.
