Monthly Technical Analysis of Nepse (23 August to 24 September, 2015)

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Opportunity for Short-tem Traders 

Nepse Figure

Trend Analysis
Nepse index followed a sideways movement for most of last month. The benchmark index tested the 1200 mark three times in the course of previous month. On 15th September, Nepse reached its all time high of 1205.84 level. The current trend shows Nepse to be falling faintly, creating lower low in the support zone. The market showed some volatility as the index made some significant gains and losses thrice during last month. This trend shows opportunity for short-term traders as they could gain during this market volatility. The market is expected to continue its sideways movement in the coming weeks.  

Resistance and Support

Nepse reached the lowest level of 1156.08 toward the end of last month. The market has been following a divergence movement with higher volatility, creating higher high and lower low in resistance and support levels. The immediate resistance and support are plotted on the basis of previous high and low. However, the index is expected to cross down and above due to its divergence movement.

(Note: The market was expected to trigger a bullish momentum in response to the announcement of the new constitution on Sunday (20th September). However, the market behaved rather strangely, and experienced negative volatility, which could lead to a possible bearish trend in the short-run. However, although the market remains volatile, it is expected to follow a bullish trend in the long run.)  

Nepse Trend Indicator

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. 

The Macd and the signal line at the beginning of the month were at 53.86 and 42.99 respectively. Towards the middle of the month, the signal line crossed above the macd line, signifying a bearish movement. Through the course of the month, both the lines followed a considerable downward movement. By the end of the month, the Macd and signal line ended at 19.65 and 26.55 respectively.

b. RSI

RSI 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. 
The average level of RSI during the prior month was 70.53 level, indicating the presence of high overbought condition in the market. The RSI at the beginning of month stood at 82.22 level. Towards the end of the month, RSI lost26.43 points to end at 55.79. This shows that currently, the buying pressure in the market seems to have calmed down.

c. 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. 

The Bollinger bands saw significant changes in the course of last month. During the first half of the month, the benchmark index moved sideways between the upper and middle bands. During the second half of the month, the upper and lower Bollinger bands converged significantly, showing a decrease in the market volatility. However, at the end of the month, both the bands showed signs of divergences, indicating that the market volatility could increase again. 

Volume Indicator (On-Balance Volume)
On-Balance Volume (OBV) is a momentum indicator that relates volume to the current price of the index or security. It measures buying and selling pressure at the market. It acts as a cumulative indicator that adds volume on up days and subtracts volume on down days. If a price increase is supported by OBV, it confirms an uptrend, whereas if a price decrease is supported by OBV, it confirms a downtrend. 

Last month, the benchmark index moved sideways whereas the OBV (On-Balance Volume) declined gradually. This signifies that higher volume transactions will decide the upward or downward trend of Nepse in the coming days. The average monthly volume transactions decreased to NPR 53.26 from NPR 63.70 the month prior. The market will show an upward trend if the volume, as well as the index, increases in the coming weeks.

The Nepse index ended in the red for most of last month. The benchmark index, lost 24.06 points (or down -1.88%) to close at 1176.86. The 50-day moving average (MA) is still moving above the 200-day MA, indicating that the overall outlook of the market looks good. However, the current trend shows Nepse to be falling faintly, creating lower low in the support zone. The average monthly volume transactions decreased to NPR 53.26 from NPR 63.70 the month prior. The RSI closed at 55.79 level, indicating a neutral stance. The Bollinger bands showed presence of market volatility as the upper and lower bands diverged slightly towards the end of the week. The new support and resistance level stands at 1155 and 1205 respectively. 

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