Technical Analysis: NEPSE should cross 1440 level for strong bullish trend to start

Last week, investors were excited as the first federal budget was announced. Market was bearish in the last 22 days and suddenly, we saw a big move on the bull side prior to the budget announcement. Public was expecting sound budget for investors but it did not live up to the public expectation. As a result, NEPSE index lost 18.6 points in last two trading days.

The NEPSE chart we have used here includes the indicators: Exponential Moving Averages (EMA), Bollinger Bands (BB), and Relative Strength Index (RSI), Volume Chart and Moving Average convergence & divergence (MACD).

Candlestick pattern: On weekly candle stick, Bullish Harami pattern was formed which indicates a reversal of the trend but considering a day to day candlestick pattern, only one day’s pattern was bullish. On day to day candlestick, no special pattern was observed.

Bollinger Band: Bollinger band is shown in main candle stick chart of NEPSE under the blue shaded part. It is used to predict volatility as well as market trend.

Bollinger band consists of three lines viz. upper band (blue, on upper side of shaded space), lower band (blue, on the lower side of shaded lines) and middle line (light blue, on the center of shaded space).

Now focus at these three lines, though shaded space had decreased in last 10-15 days, you will observe that lower and upper band are diverging now, which means NEPSE index is moving towards a volatility period, we could see big movements in NEPSE upcoming weeks. If you look at the picture, NEPSE index is not able to trade above the middle line in last 15 trading days which simply means that the market is bearish.

EMA : Exponential moving average is used to predict continuation and reversal of the trend. We have used three major EMA of 5 days (blue, in between the blue shaded space), 20 days (red, inbetween the blue shaded space), and 180 days (green, above the upper band of bollinger bands).

Both EMA(5) and EMA(20) are above the NEPSE index value and are giving an immediate resistance at 1,318.9 and 1,329, indicating an immense selling pressure, as there is no immediate support for the NEPSE index. EMA(180) is far above the current value of NEPSE, which means market was not able to recover the losses of last 180 days and long term as well as short-term market trend is downward. Short term EMA’s being below the long term EMA’s is a strong bearish signal.

Volume: Average volume of last 42 trading days is around 1,140 and NEPSE index was traded around the same volume in last 1 week which means investors are not eager to enter into the market.

RSI: Relative Strength Index is used to indicate Over-bought (too high price) and over-sold (too low price) price of the stock. Line chart in pink shaded part is a RSI indicator. When it touches the upper limit of 80 it is said to be over-bought and when it touches the lower limit of 20, it is said to be over sold. Both over-bought and over-sold indicates a reversal in the current trend. As you can see, RSI is around 42.83 just below the neutral level of 50 that means there is no strong indication from RSI this week. Normally, oversold position is taken at 30 and over-bought position is taken at 70.

MACD: Chart on the lowermost part of the picture is Moving Average Convergence & Divergence. MACD is used to predict market trend. In the chart, MACD line (blue) is below the signal line (red) making a negative histogram.  Histogram had decreased comparing to last few days, that means MACD line and Signal line is converging which indicates slow-down of the bearish trend. But as signal line is above MACD line, over-all market trend is still downward.

Conclusion: Most of the indicators are indicating a bearish nature as whole. Volatility may increase but the rate of increment could be slow, so we could see some bearish breakouts in upcoming days but movement may not be large as expected.

NEPSE is trading in the range of 1,170-1,440, so for the confirmation of an uptrend NEPSE should cross 1,440 and for downtrend it should cross 1,170.

Last week, market had opened at 1300 points and closed at 1308 points; high for the week is at 1,342 points and low is at 1,291 points.

Pivot point and important support & resistance for this week:

Pivot point is at 1313.66, which also acts as a resistance.

First resistance: 1336.32

Second Resistance: 1364.66

First Support:    1285.32

Second Support: 1262.66