Monthly Technical Analysis of Nepse (2 May to 25 May 2016)

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Above 50 & 200 Days Moving Averages

Nepse Figure

Trend Analysis
The benchmark index continues to create new heights as the bullish momentum is driving the market upward. The index gained 59.21 points (or up 4.01%) to close at 1524.12 in the course of last month. The market did correct itself during the course of the week. However, the trend looks bullish as Nepse ended in the green for most of the trading days. Positive 3rd quarter reports of the BFI’s supports the bullish sentiment present in the market. The index continues to climb above the 50-day moving average, as well as the 200-days moving average, indicating that the long-term market outlook looks good.

Resistance and Support

The benchmark index surpassed its immediate resistance level of 1500 towards the end of last month. Currently the immediate support and resistance levels stand at 1463 and 1600 respectively. As the index continues to climb up, it could surpass the psychological resistance level of 1600 in the coming weeks. However, Nepse could also experience some corrections like it did during the end of the month. 

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, stood at 35.11 and 33.04 respectively. In the course of the month, the macd and the signal line fell by 6.02 and 5.30 points to close at 29.10 and 27.74 respectively. The macd remaining above the signal line gives a positive indication in the market. However, macd movement is following a negative divergence as compared to the climb witnessed by Nepse, which could indicate a slowdown in the bullish momentum.

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 RSI continues to hover above the 70’s zone for most of last month. RSI at the beginning of the month stood at 85.79 level. In the course of the month, it lost 14.42 points to close at 71.37 level. The RSI indicator shows a presence of high buying pressure in the market. Nonetheless, The RSI remaining above the 70’s zone for a long time period signifies a strong bullish momentum in the market.

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. 

In the course of last month, the benchmark index moved close towards the upper Bollinger band, which indicates over-bought condition in the market. The distance between the upper and lower bands narrowed down for majority of the month. However, towards the end of the month, the bands have started to widen, signifying an increase in market volatility.

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. 

The climb witnessed by the OBV (On-Balance Volume) is much steeper as compared to that of the Nepse index. This rise in the OBV supports the bullish momentum present in the market. The average monthly volume transactions increased to NPR 103.29 crores from NPR 73.28 crores the month prior. The volume transaction remaind above 1 billion during the last week of the month. Furthermore, the turnover on 24th May stood at 1.6 billion, which is the highest in history.

The benchmark index gained 59.21 points (or up 4.01%) to close at 1524.12 last month. The index is moving well above the 50-day and 200-day moving average, indicating the overall market outlook looks good. The RSI continues to signal high buying pressure in the market as it is hovering at 71.37 level. The macd is moving above the signal line, which gives a positive signal. However, both the lines are moving downwards, which could mean a slowdown in the bullish momentum. The Bollinger bands show high buying pressure in the market as the index is hovering close to the upper band. The bands also indicate an increase in the market volatility as the upper and lower bands have diverged. The new support and resistance levels stand at 1463 and 1600 respectively

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