Technical Analysis Monthly (Oct 20 – Nov 20)

  3 min 58 sec to read

Nepse with Firm Support at 844
Market Trend
Since Nepse peaked at 1083.55 points on July 21, 2014, the stock market has been following a bearish pattern. Though the markets stabilized and saw a 2.88% rebound during the last trading period, overall Nepse has continued its downward trend as it lost 63.35 points (or -6.84%) during the month to close at 862.50 points. It crossed below its 200-day moving average for the first time since April 2012, which is normally indicative of a sell signal in the market. The average daily market volume remained almost unchanged at NPR 229.8 million. The current resistance level stands at 875.56 while the support level of 844.42 will be very important for the markets in the coming weeks. If Nepse cannot sustain above this level, there may be a prolonged bear market. It is critical for Nepse to move above the 200-day moving average, which would indicate a buy signal in the market.
Relative Strength Indicator 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. 
During this trading period, the RSI could not sustain within the neutral zone. There was greater selling pressure in the market causing the RSI to follow an overall downward trend. By the end of the trading period, the RSI stood slightly above the oversold zone at 35.55 levels. 
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. 
During the initial days of this trading period, the MACD line and Signal line were moving in the upward direction towards the zero line. However, as soon as the MACD line touched the zero line, it changed direction and crossed below the Signal line producing a sell signal. Since then, the momentum has once again shifted in the downward direction.
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 is represented by calculating standard deviation. 
Nepse began this period maintaining above the mid-band but it soon fell below the mid-band and declined steeply to touch the lower band. Since then, it has followed the downward trend along the lower band. This sharp decline has caused the upper and lower bands to widen significantly suggesting increase in marketvolatility. 
Investor confidence took a big hit during this period, as market participants were weary about the possibility of drafting the new Constitution on time. The Constitution drafting committee missed yet another deadlines causing increased selling pressure in the market. As a result, Nepse nosedived by 63.35 points (or -6.84%) to close at 862.50 points. During the period, Nepse crossed below its 200-day moving average for the first time since April 2012, which is normally indicative of a sell signal in the market. 
However, Nepse stood firm at the strong support level of 844.42 points, which has been tested multiple times before. The average daily market volume remained practically unchanged during this period at NPR 229.8million. Though the RSI indicator fell into the oversold zone, it closed at 35.55 levels, which is slightly higher than the level reached at close of the last week of preparing this report. The MACD indicator shows a greater momentum in the downward direction. The Bollinger Bands show rising volatility in the market due to widening of the upper and lower bands. The market remains in a bearish phase; however, if it can move past the 200-day moving average, there may be a possibility of a trend reversal.

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