NEPSE Index Potentially At Pivotal Point (Weekly Summary With Sector Analysis, Broker Comparison, and Major Market Movers)

Fri, Jan 21, 2022 2:25 PM on Stock Market, Weekly Analysis, Latest,

-ShareSansar

Part 1: Rundown and Technical Analysis

The NEPSE index gained for three days and lost for two days in the five trading days this week. The market is closed on Fridays and Saturdays every week.

The NEPSE index closed at 2,931.34 this week after a gain of 73.59 points (2.58%). The index had closed at 2,857.75 last week with a gain of 6.14% from the week before that.

This week, the index went as high as 2,981.35 and as low as 2,873.42, hence witnessing volatility of 107.93 points. In the previous week, the index had seen volatility of 174.93 points.

Analysis of Trend

The NEPSE index is up more than 25% compared to the same date last year. However, it is down around 8.32% from the all-time high of 3,198.60 created around five months ago. Nonetheless, the index has bounced back around 29.83% after reaching the nearest intraday low of 2,259.63 on December 13 (the most recent significant pivot low).

Candlestick Charting

On the weekly candlestick chart, this week's market movement has formed a small green candle with comparable upper wick and no lower wick. Last week, the weekly chart had formed an extended green candle with no lower wick.

The first trading day (Sunday) this week formed a promising green candle, a gain of 2.41% on the index. The index then gained 0.71% the next day, with the formation of an indecisive green candle. NEPSE closed red on Tuesday and Wednesday and gained 33.03 points on Thursday, the last trading day.

Whether the highest point of 2,981.35 will end up being a pivot point will be determined by next week's index movement. For now, it isn't exactly clear whether NEPSE has already entered a correction.

Momentum Indicators

The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or index. Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.

The RSI reading on the daily timeframe is 69.01. It should be noted that the index crossing over 70 does not immediately indicate the possibility of a downtrend, although it denotes overbought conditions. Stocks and indices frequently venture in and out of the 70-100 zone during an uptrend. Meanwhile, the RSI reading on the weekly chart is 59.11.

On the other side of things, the MACD line is positive, i.e. above zero in the daily timeframe, with the MACD reading at 99.34. Both the MACD line and the signal line are positive, and the MACD line is above the signal line.

Volume

A chart reader can deduce investor sentiment with volume. Essentially, trading volume can legitimize a security's price action, which can then aid an investor in their decision to either buy or sell that security.

During market falls, the volume is dry and during bullish days, there is a general increase in volume. This week opened with the highest volume seen since September 06 last year. However, the volume gradually declined and reached its weekly lowest on the last trading day.

Support/ Resistance and Price Action

First and foremost, there is no rigid rule to deduce support and resistance levels from a stock/ index chart. Technical analysis is more an art rather than hard science since it is an attempt to deduce market psychology after all. As is the case with human behavior, markets are largely unpredictable, subject to whims and instance changes in sentiment. The best a chart reader can do is deduce investing strategies using what has worked historically, and what gives a competitive edge even in securities other than those present in the sample data.

The resistance level is simply the price above which the index has had trouble moving up. Thus, the previous high (or a series of highs if they are on the same level) can be used as resistance. Meanwhile, if the stock or index chart has gone below the previous low, it can also be inferred as a resistance level, since the previous support level acts as resistance if the price/ index has broken below it.

On the other hand, the support level is simply the price below which the index has had trouble moving down. Thus, the previous low (or a series of low if they are on the same level) can be used as support. Meanwhile, if the stock or index chart has gone up the previous high, it can also be inferred as a support level, since the previous resistance level acts as support if the price/ index has broken above it.

After the index broke out from the supposed resistance at 2,875 this week, it has come back to retest the level by the last trading day.

Thus, the weekly high near the 2,980-level may serve as immediate resistance. If it eventually breaks above this zone, the index may need stronger market participation to rise any further. This is because as the index rises, it approaches the all-time high. All-time highs are difficult to break until the move is supported by significant volume.

However, chart readers may be expecting a correction since the index has witnessed a steep, significant gain from the most-recent pivot low.

Meanwhile, if the index shows signs of bouncing below the support zone of 2,875, it may find the nearest support in the 2,790 level. The next zone of demand may then be found at around the 2,700-index level.

Image: In the absence of decisive pivot points because of the steep rise, the support levels have been determined from reversal inclinations in daily candles which are then matched with nearest psychological index levels. Pivot points of previous swings have also been used for secondary confirmation.

Part 2: Insight Into Important Data

More than 7.65 crore unit shares worth Rs 37.81 Arba have been traded through 4.73 lakh transactions this week. The current market capitalization of NEPSE stands at Rs. 4,142,530.88 million.

NEPSE index and Sub-indices performance: (Increment based on previous week's close)

The NEPSE index increased by 2.58% this week. The Banking sector gained the most this week with an increment of 3.61%.

Stock with highest monthly Beta (Microfinance, Non-life insurance, Hydropower)

Gurkhas Finance Limited (GUFL) has the highest monthly Beta value of 0.56 followed by Narayani Development Bank Limited (NABBC) and Miteri Development Bank Limited (MDB) with 0.53 and 0.43 beta values respectively.

Top Ten Gainers of the week:

Samling Power Company Limited (SPC) is the top gainer of this week. SPC closed at Rs. 732 with Rs. 206 (39.16%) increment.

All the analysis is done with the SS Pro Software. To know more about the software, click on the link below

SSpro

Top Ten Losers of the week:

Bottlers Nepal (Terai) Limited (BNT) price has decreased by 7.91% and its LTP stands at Rs. 14,400.

Top Stocks by Turnover, Volume, and Number of Transaction:

Arun Valley Hydropower Development Company Limited (AHPC) is the top traded company of the week. A total of Rs. 1.42 Arba worth of AHPC shares were traded this week.