Why there may be no 'bull-stop' for the market rally

By Nikhil Walavalkar & Ramanatha Pai

As benchmark indices enter uncharted territory, the question that most investors are asking is how strong is the rally? Prima facie, it appears that the rally is losing steam but a closer look at the broader market suggests the undercurrent is still strong.

ET did a study of the price movements of 423 stocks that are part of the BSE 500 index — the broader market barometer — and compared them with the trends five years ago. The basis of the comparison is that the Nifty is at all-time highs now, while in November 2010, too, it was at peak levels. According to the study, in the past three months, more than 50 out of the 423 stocks hit 52-week highs on 14 days. In 2010, there were 10 days when more than 50 out of the 423 stocks hit 52-week highs. This year, the number of stocks hitting a 52-week high on a given day (maximum 151 stocks) is far higher than in the period under review in 2010 (maximum 75 stocks).

Analysts treat an uptrend healthy, when more number of stocks hit 52-week highs and there is a decline in the number of stocks hitting 52-week lows. The advance-decline ratio for the day is another parameter that is keenly watched to gauge the broad market trend.

The ratio is arrived at by dividing the number of stocks that registered an advance in price by the number of stocks that registered a decline in price compared with the previous day. Higher the advance decline ratio, the better it is for a rising market.

This parameter is also pointing to a bullish undertone. In the three months preceding the Nifty high of CY10, 29 out of 66 trading days saw an advance-decline ratio of more than one.

In the past three months, this number stood on a higher side, 36 out of 65 trading sessions.