Monthly Technical Analysis of Nepse (July 21 - August 14, 2014)

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Market Trend
On the first trading day of the review period the secondary market had witnessed the highest rise as the benchmark index settled at 1083.55 points, a new high since the last 6 years. On the same day Nepse had attained the highest turnover of NPR 1.20 billion on a single trading day in its history. However, in the days that followed volume as well as price of the listed stocks went down the hill forcing the benchmark Nepse index to be bearish. On August 12, 2014, Nepse reached its lowest point during the period by settling below the support level of 1025.69 points.
The period lacked enough support from volume, as numerous brokers were barred from regular trading on multiple occasions. As a result the daily average turnover, which hovered around NPR 624.0 million during the previous period, fell to NPR 529.2 million for this period. Nepse's directive barred as much as 16 brokers from regular trading on multiple occasions due to non-settlement of share transactions within the T plus Three days. Along with declining volume, the investors' sentiment remained slightly negative during the period. Though there has been downtrend in the secondary market in recent times, it has managed to maintain the above the 50-days moving average. This is an indication of bullish momentum in the longer term.  
Relative Strength Indicator is one of the leading indicators of technical analysis that is believed to be most effective during periods of sideways movement in the stock markets. Such indicators may create numerous buy and sell signals that are useful when the market is not clearly trending upwards or downwards. 
The RSI showcases a similar trend to that of Nepse as it reached a high of 88.69 points on the first trading day of the review period but witnessed a gradual decline over the time. On August 12, 2014it reached as low as 47.02 but was able to close at 52.92 levels by the last day of the period. As a result, the RSI indicator is currently maintaining within the neutral zone slightly above the neutral line of 50. This can be an indication of positive momentum in the stock market. 
The MACD is a momentum oscillator formed by using two different types of moving averages, which provides specific buying or selling signals in the market as well as particular stock. 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.
Following a trend similar to the RSI, the MACD line of Nepse crossed below the Signal line on July 28, 2014 and accelerated in the downward direction. The MACD line has been falling at a greater momentum than the Signal line indicating that there has been higher number of sellers than buyers in the market during the period. 
Bollinger Bands
The Bollinger Bands are also one of the kinds of technical indicators that consist of 21-days moving average along with two trading bands (one above and one below). The bands are considered as an indication of volatility in the markets as well as share price, which is obtained by calculating standard deviation the respective index or price. After some weeks of decline, Nepse retraced lower after touching the upper band. The trend continued as it crossed below the mid-band and almost touched the lower band. After that it managed to slightly increase. The market appears to be consolidating in recent times. As a result, the market appears to be getting slightly oversold in the near term.
Following a sharp decline in the previous period, Nepse fell by all most 4 per cent to close at 1034.39 points. Although the first trading day of the review period saw huge turnover of NPR 1.2 billion in the country's secondary market, the following days witnessed a decreasing share prices and daily turnover. The significant drop in turnover as well as prices was a result of Nepse’s restriction multiple brokers, who were not allowed for regular trading several times. This gradually hampered the investors' sentiment and forced the buyers to become cautious to the market. 
Technically, RSI declined and moved below the overbought zone to end slightly above the central line within the neutral zone. The MACD also indicates that the overall momentum in the market has been negative in recent times with greater pressure in the downward direction. The Bollinger Bands indicate that though the momentum has been trending lower, the market might be gradually getting oversold. Overall, there has been greater momentum towards downward direction and a significant increase in market turnover will be required to create upward pressure in the Nepse.

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