NIFTY’s Crossovers

A golden cross happens when a smaller daily moving average intersects and moves above a larger daily moving average, commonly the 50 DMA squigglier line cutting above the meandering 200 DMA line. They say that golden crosses mark the transition into the bull market. Well, NIFTY sure seems to be plotting and planning a golden cross and I guess the next few days will make it clear. The budget is around the corner, so it may very well be the case of Mr. Market holding its breath, crossing his fingers and hoping that nothing stupid, unexpected or untoward happens – all the populous evil having already been factored into the price. If the day passes over (RBI is widely expected to sit out of this party having done its bit in terms of the CRR cut) then its likely that the market resumes its upward journey with the 50 DMA pulling away from the crossover point.

So, I pulled up data on the NIFTY from 2000 and charted the various crossovers between the 50 DMA and the 200 DMA. The green columns indicate days where 50 DMA > 200 DMA while the red ones are for days where 200 DMA > 50 DMA. The gray mountain range is the NIFTY during this entire period (17Jan02 to date) rebased to zero at the starting date of this chart (i.e. 17Jan02). The reason the chart starts from 17Jan02 is because I have NIFTY data from start of 200 and from that date it took upto 17Jan02 for the first golden cross to appear (if the index values before 2000 are ignored). The point is that up till now the proportion of days that the 200 DMA is greater than the 50 DMA (bearish climate) has been quite low – as you can infer visually from the chart.