Technical Analysis Monthly (Dec 21, 2014 to Jan 20, 2015)

  3 min 47 sec to read

Market Trend
Giving continuity to the previous period’s positive momentum, Nepse has been able to make remarkable gains during this period. The stock market moved past its strong resistance level of 938.41 to close at 962.8 points – an increase of 58.91 points or 6.52 per cent. As a result, the previous resistance level of 938.41 has become the new support level while 972.17 has become the new resistance level. Volume remained one of the positive signs during this period as investors traded NPR 28.72 crores (approx.) each day. This is a significant improvement from the previous period when the total market volume stood at NPR 18.69 crores on an average. Since, Nepse moved past the 50-day and 200-day moving averages, it had triggered a buy signal. Hence, it will be important for Nepse to maintain above these averages for a sustained bull run. 
Relative Strength Indicator is a form of leading indicator that is believed to be most effective during 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. 
During this trading period, the RSI maintained mostly within the neutral zone. However, by the end of the trading period, it managed to creep up just above the overbought zone. The indicator increased by 9.82 points to close at 70.19 levels – suggesting that the market may be slightly overpriced. 
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. 
Since the MACD line crossed above the Signal line on December 04, 2014 (which indicated a buy signal), it has continued with an upward trend. The MACD line met with another buy trigger when it moved past the zero line. The MACD line moving consistently above the Signal line suggests the strong momentum observed in recent times. 
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 is represented by calculating standard deviation. 
The Nepse line has seen a major upward trend in recent two periods. As a result, it has closely followed the upper band and has moved past it during the final days of trading. This is normally indicative of a huge buying pressure, but it also indicates that the market may be over-heated in the near term. The widening upper and lower bands also suggest rising volatility in the market. 
Over the trading period, investors remained fairly optimistic towards positive outcome in constitution drafting process. This helped Nepse move higher as the deadline of January 22, 2015 to promulgate the new constitution drew closer. As a result, the stock index rose by 58.91 points (or 6.52 per cent) to close at 962.8 levels. The market volume scenario remained positive as the average daily volume increased to NPR 28.72 crores from NPR 18.69 crores recorded during the earlier period. Due to the recent rise in the market, the new resistance and support levels for Nepse are 972.17 and 938.41 respectively. Though the RSI indicator maintained mostly within the neutral zone, it has recently crept into the overbought zone. The MACD indicator suggests that the momentum still remains in the upward direction. The Bollinger Bands indicate a rise in market volatility in recent times. Overall, the 50-day moving average is still below the 200-day moving average suggesting that the market is still in a sluggish period. Hence, if the 50-day average can cross above the 200-day average, this would indicate an important buy signal.

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