Monthly Technical Analysis of Nepse (28 June to 28 July 2016)

  4 min 34 sec to read

Overbought Zone

Trend Analysis
The benchmark index saw tremendous growth in the course of last month. The index gained 165.09 points (or up 7.86%) to close at 1877.93. Various policies and economic scenarios have supported the bullish sentiment 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. The monetary policy, which was released last month, did little to negatively affect the stock market, which further fueled investor confidence. Positive 4th quarter financials of the BFIs continues to increase demand for BFI stocks. Furthermore, decrease in brokerage fee, as well as extended trading hours has created a favorable environment for investors.

Resistance and Support

The benchmark index surpassed the 1700 level at the beginning of last month. By the end of the month, Nepse broke the resistance level of 1800. The new psychological resistance level now stands at 1900, and the support level stands at 1723. It seems that the index will experience some corrections in the coming days. However, given the current bullish environment, the index could surpass the 1900 resistance level in the coming week.  

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 51.47 and 42.37 respectively. During the first half of the month, the macd line showed a bearish signal as the line fell down and went below the signal line. However, by the second half of the month, the macd line climbed up and above the signal line, indicating a bullish momentum. By the end of the month, the macd and the signal line ended at 61.49 and 52.03 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 RSI, at the beginning of last month, stood at 84.30 level, indicating a high buying pressure in the market. The RSI fell and moved out of the buying pressure during the middle of the month. However, it climbed back up as the demand for scripts increased towards the end of the month, where it ended at 83.13 level. The RSI remaining above the 70 level for a long time period also signifies 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 fell down towards the middle bollinger band at the middle of the month, showing a slight decrease in the buying pressure. The mid band showed to be a support level to the Nepse index. However, the index climbed back up, and hovered around the upper band for the rest of the month, indicating over-bought condition. The distance between the upper and lower bands has increased as well, signifying a rise in market volatility. 

The benchmark index gained 165.09 points (or up 7.86%) to close at 1877.93 last month. The index is moving well above the 50-day and 200-day moving average, indicating the overall market outlook looks good. The technical indicators support the bullish presence in the market. The macd line is climbing up and above the signal line. The RSI is at 83.13 level, showing an increase in the buying pressure in the market. The bollinger bands show over-bought condition, as well as an increase in market volatility. The new support and resistance level stands at 1723 and 1900 respectively. 

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