Political Interference, Circuit Breakers, and More Red Days: NEPSE Weekly Summary

Fri, Dec 17, 2021 3:07 PM on Stock Market, Featured, Weekly Analysis,

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NEPSE closed green only one day in the five trading days this week. The NEPSE index closed at 2,376.74 this week after a fall of 73.23 points (-2.99%). The index had closed at 2,449.97 last week with a fall of 5.27% from the week before that.

This week, the index went as high as 2,490.62 and as low as 2,259.63, hence witnessing volatility of 230.99 points.

Analysis of Trend

The NEPSE index is up more than 18% compared to the same date last year. However, it has lost more than 25% from the all-time high of 3,198.60 created around four months ago. The index has bounced back after reaching the nearest intraday low of 2,259.63 on December 13.

Candlestick Charting & Analysis of Unique Market Movers This Week

On the weekly candlestick chart, this week's market movement has formed a candle similar to the hammer candlestick, but with an additional upper wick. Although the index lost this week in overall market action, it had gained a vigorous 6% on December 14, hence hitting the circuit breaker for the day. However, the two trading days that followed could not continue the bullish momentum.

The upper wick of the candlestick formed on December 15 was extended as high as 2,490.62. Combining this with the assumed psychological resistance at the 2,500 level, it can be inferred that 2,500 can act as a probable resistance for the upcoming week's market action.

It is difficult to ascertain whether this week's market movement was completely guided by natural supply/ demand forces since the capital market witnessed political interference this week. Pushpa Kamal Dahal, former Primer Minister of Nepal, condemned investment in the stock market and alleged that NEPSE, SEBON, International Monetary Fund, and World Bank are the modern form of imperialism. The index had then lost in the days that followed. Following this, another former PM KP Sharma Oli remarked sarcastically that Dahal must have been acting on his personal ego, perhaps a result of an investor not extending financial support to Dahal.

Moving Averages

NEPSE index is below both 5 days Exponential Moving Average (EMA) and 20 days EMA. The index below these moving averages signals for bearishness. The 5 days EMA crossed the 20 Days EMA from above on November 25, forming a Dead Crossover pattern. The Dead Cross is a technical pattern indicating the potential for a downtrend, and the index has been losing ever since.

The 200-day simple moving average (SMA) is also considered a key indicator by traders and market analysts for determining overall long-term market trends. The price went below the 200-day SMA on November 23. When a stock price moves below the 200-day moving average, it's considered a bearish signal indicating a likely downward trend in the stock.

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 33.84. Meanwhile, the RSI reading on the weekly chart is at 35.67.

On the other side of things, both the MACD line and the signal line are negative, i.e. below zero in the daily timeframe, with the MACD reading at -93.74. The MACD line is below the signal line, and both are negative, hence indicating a general pessimism in the market.

Support and Resistance

There is no rigid rule to deduce support and resistance levels from a stock/ index chart.

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.

With these considerations, the NEPSE has index has immediate resistance at around 2,490.62. On the other side of things, the nearest previous low is at 2,259.63, which may serve as immediate support.

Fibonacci Retracement

Meanwhile, one can also draw the Fibonacci Retracement from the major-trend extreme points to ascertain the S/R levels. In this instance, we have taken 1,093.07 index level as the extreme-low and 3,193.16 as the extreme-high.

On these assumptions, the index is very near the resistance zone at 2,390.93. Significant resistance may be found higher at 2,697.54 and then at the ultimate peak, i.e. 3,193.16.

On these very assumptions, the nearest major support is at 2,143.11, and then at 1,895.30.

Weekly Market Summary of NEPSE:

More than 3.64 crore unit shares worth Rs 16.11 Arba have been traded through 2.52 lakh transactions this week. The current market capitalization of NEPSE stands at Rs. 3,341,449.86 million.

NEPSE index and Sub-indices performance: (Decline is based on the previous week closed value)

The NEPSE index decreased by 2.99% this week. All the sectors lost in this week.

Stock with the highest monthly Beta value from the Microfinance and Non-life insurance and Hydropower.

Samling Power Company Limited (SPC) has the highest monthly Beta value of 0.69 followed by ICFC Finance Company Limited (ICFC) and Manushi Laghubitta Bittiya Sanstha Limited (MLBS) with 0.55 and 0.52 beta values respectively.