Technical Analysis Monthly (Nov 21 – Dec 20) : Fighting 916 Resistance

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Market Trend
There was significant sideways movement in Nepse in the period between Nov 21, 2014 and Dec 20, 2014. The immediate support level of 844.42 was tested three times while the imme-diate resistance level of 875.56 was tested once in the review period. In the last week of the pe-riod, buoyed by news of probable consensus among major political parties on major points in the constitution writing, the jubilant investors pushed Nepse past its immediate resistance level of 875.56. There was massive increase in trading volume to NPR 28.23 crores on Dec 14, 2014 and NPR 35.72 crores on Dec 15, 2014 (significantly more than the monthly average NPR 18.69 crores). Nepse reached the highs of 916.74 on Dec 15, 2014 before correcting to 903.89 on Dec 18, 2014. Currently, the market has been hovering between the resistance and support levels of 916.74 and 875.56 points respectively.
Relative Strength Indicator is a form of leading indicator that is believed to be most effective dur-ing periods of sideways movement. Such indicators may create numerous buy and sell signals that are useful when the market is not clearly trending upwards or downwards. 
RSI hovered within the range of 30 and 40 in the first twenty days of the review period. The buying pressure increased significantly since then to push the RSI to high of 68.16 on Dec 15, 2014. The positive news on probable political consensus increased the buying pressure in the market. The RSI pulled back slightly since then to stay at 60.36 level on Dec 18, 2014. The RSI is still close to the overbought zone. We could see smaller corrections in the market in days ahead.
The MACD is a momentum oscillator formed by using two different types of moving averages, which provides specific buying or selling signals. When a MACD line crosses above the signal line, it is considered to be a positive sign and indicates a time to buy, and vice-versa. 
During the start of the trading period, the MACD line and Signal line converged, and remained together. On Dec 09, 2014, the MACD line could finally gain on Signal line, which indicated a buy signal. As of Dec 18, 2014, the MACD line is at 4.31 and the Signal line is at -3.93. 
Bollinger Bands
The Bollinger Band is a technical indicator that consists of a moving average (21-day) along with two trading bands above (upper band) and below it (lower band). The bands are an indication of volatility, which are represented by calculating standard deviation. 
In the review period upto Dec 10, 2014, the upper band and lower band came closer, indicating reduced volatility in the market. Nepse, which was hovering between the lower band and the mid band, crossed the mid band on Dec 10, 2014 and breached the upper band on Dec 11, 2014. Since then, the volatility in the market increased, as indicated by diverging upper and lower band. On Dec 17, 2014, Nepse moved below the upper band, generating a sell signal for the coming days.
After continued sideways movement in the market for most of the review period, Nepse breached the previous immediate resistance level of 875.56 on Dec 14, 2014. This push was due to the positive news on probable political consensus in constitution writing process. The gain achieved by Nepse on the last week of the review period saw Nepse register gain of 4.80% at the close of the present review period over the close of previous review period. 
The average trading volume decreased to NPR 18.69 crores, down from NPR 22.98 crores in the previous review period. The RSI moved from near to oversold region to close to overbought region. The Bollinger Bands indicate that the market has been overbought in recent times. The diverging Bollinger bands signify increased volatility in the market. If the indicators are to be assessed holistically, we may see a minor correction in days ahead.

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