Monthly Technical Analysis of Nepse (26 May to 27 June 2016)

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Increased Volatility

Nepse Figure

Trend Analysis
The benchmark index created history by breaking the 1600 and 1700 mark in the course of last month. The index gained a staggering 197.65 points (or up 12.34%) to close at 1721.77. The Insurance and Hydropower sectors have caused the market to climb further up. The index continues to climb above the 50-days 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 1600 towards the middle of last month. Furthermore, the index surpassed the psychological resistance level of 1700 at the end of the month. Such growth shows a strong presence of bullish momentum in the market. Currently the new support and resistance level stands at 1600 and 1800 respectively. It seems that the index will experience some corrections in the coming days. 

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 28.75 and 27.95 respectively. In the course of the month, the MACD and the signal line gained 20.12 and 12.30 points to close at 48.87 and 40.24 respectively. The MACD indicator supports the bullish momentum present in the market as the MACD and the signal line are moving up, where MACD line is above the signal line.

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 fell down towards the 60’s zone during the first half of the month. However, for the rest of the month, it entered and remained above the 70’s zone. The RSI ended at 84.05 level, indicating high buying pressure in the market. The RSI indicator also shows a strong bullish presence 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. 

The benchmark index remained close to the lower Bollinger band at the beginning of the month. However, the index bounced back up and hovered around the upper band for the rest of the month, indicating an overbought condition in the market. The distance between the upper and lower bands has diverged, 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 OBV (On-Balance Volume) climbed further up along with the climb witnessed by the Nepse index. This increase in the OBV supports the bullish rise in Nepse. Furthermore, the volume turnover on 14th June stood at 2.19 arba (billion), which is the highest in Nepse history. The average monthly volume transactions increased to NPR 150.66 crores from NPR 103.29 crores the month prior.

The benchmark index gained 197.65 points (or up 12.34%) to close at 1721.77 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 is hovering above the 70’s zone, indicating high buying pressure in the market. The MACD is moving up and above the signal line, which supports the bullish climb witnessed by Nepse. 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 level stands at 1600 and 1800 respectively.

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