Indian market has fallen by about 10 per cent from the recent high recorded in October and in the process, many large-cap stocks have slipped below their crucial long-term moving average of 200 Days Exponential Moving Average (EMA).

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There are as many as 12 stocks in the Nifty500 index with a market capitalization of more than Rs 1 lakh crore are trading below their crucial long-term moving averages as on data collated on 20 December showed from Trendlyne.

Stocks that are trading below the crucial long-term average include names like HDFC Bank, HUL, HDFC Ltd, Kotak Mahindra Bank, ITC, Axis Bank, Adani Ports, and HDFC Life Insurance etc., among others.

Exponential Moving Averages (EMA) are used as indicators for long-term trends. The 200-day EMA is considered a key indicator used by traders for determining overall market trends.

Theoretically, if the price close below 200 EMA is considered a bearish trend and a price close above 200 EMA is considered a bullish trend, but investors should use other indicators as well before making a buy or a sell decision.

“Technically, 200-EMA is a very critical support level because most institutional investors like to accumulate their favorite shares around this level; therefore we see a strong bounce back in any stock around this level,” Santosh Meena, head of research, Swastika Investmart Ltd, said.

“200-EMA alone can't help you to get the right trend because sometimes many stocks fall below their 200-EMA if there is a sharp correction in the market. Therefore, one should look for other support levels and price action along with some understanding of fundamentals,” he said.

What should investors do?

Many blue-chip companies are trading below their crucial long-term moving average which essentially puts them in a downtrend.
 
Most of the large-cap companies are facing relentless selling by foreign institutional investors who have pulled out more than Rs 30,000 cr in the cash segment of the Indian equity markets so far in December – 3rd straight month of the selloff.

Experts advice investors to create some long positions in some of the bluechip names that could turn out to be a good buy on dip candidate.

“For Long term perspective aggressive investors/traders can make positions on lower levels in HDFC Bank Ltd, Hindustan Unilever, Kotak Mahindra Bank, Axis Bank Ltd. and close out the positions when Nifty trade blow 200 EMA support on closing basis,” Gaurav Garg, Head of Research at CapitalVia Global Research, said.

Meena of Swastika Investmart Ltd said that he is bullish on economy-facing banks where SBI and ICICI Banks are our top picks in the banking space while Kotak Bank and Axis Bank are also providing favorable risk-to-reward ratio.

Where is the market headed?

The Nifty50 bounced back on Tuesday after falling over 2 per cent in the previous trading session but is still trading below 100-Days EMA placed at 17,150. The 200-EMA is placed at 16,283 on the daily charts.

The Nifty Bank is still trading below its crucial 200-EMA or the long term trendline placed at 35452 which essentially places the index in a downtrend.

NiftyBank slipped below its 200-EMA after one year which is generally not a good sign, but experts see 34000 as a strong support for the index from where it could see a bounce back, and on the higher side 35000-36000 could act as resistance.

“If NiftyBank slips below the 34000 mark then 33000-32500 area will be the next important demand zone. On the upside, 35000 is an immediate hurdle while 35700-36000 will be a critical resistance zone; above this, we can expect any major short-covering rally,” highlighted Meena.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)