The second anniversary of NEPSE index high of 1888; comparative study of 2016 bull & 2018 bear market

It's been two years since NEPSE index hit the all-time high of 1888 on 27th July 2016.

In the last two years, so many things had changed in Nepal and its capital market. The stable government was introduced in the country. Our economy is growing, per capita income has increased and the unemployment rate has decreased.

C-ASBA system has introduced, as a result a reach of the primary market has increased. As of now, more than 10 lakhs investor has a DEMAT account and Investors are much aware of the financial market. These are few achievements of the Nepalese capital market in the last two years. Despite all these development, the market is still bearish.

On the second anniversary of NEPSE index high of 1888, we came with the comparative study of the market of 2016 and 2018.

Let's compare the movement of NEPSE index in 2016 and 2018 respectively.

The chart above shows the NEPSE index movement in the June-September of 2016. NEPSE index had gained more than 400 points in the month of June-July that year.

To get the fair idea of the movement, we have used three Exponential Moving averages of 5 days period (green line), 20 days period (green line) and 180 days period (black line). The important thing that we noticed is 200 days EMA (black) was way below the NEPSE index value which means the long-term trend was bullish. During that time the bullish candle had formed frequently than the bearish one.  NEPSE index was trading above the EMA of 5 days (red) and 20 days (green) and that shows the investors were very positive during that time.

Now we will explore the NEPSE index chart of 2018.

The chart seems exactly opposite to the 2016 chart, the 180 days moving average is far above the NEPSE index value. Both 5 days and 20 days moving average is above the NEPSE value and that shows negativity among the investors.

Let us compare by another chart

The NEPSE index chart of 2016 with the MACD is shown below and we can observe that the MACD (blue line) is positive most of the time and that shows the positive market sentiment among the investors.

The chart below shows the NEPSE index movement in 2018.

The chart expresses that the situation in 2018 is exactly opposite to that of 2016. We can observe that the MACD is negative in most of the position that shows negative market sentiment.

Let check the movement of NEPSE index in the last two years.

Since 2016, the NEPSE index has made lower lows one after another and in the last two years, the NEPSE index has retraced majorly on two occasions once in the March-April 2017 and other in March 2018. During the uptrend the turnover has increased in almost all cases and in a bear market the turnover stands at relatively lower value as we can observe from the above chart.

Let's compare the important statistics of 27th July 2016 and 26th July 2018.

The average turnover was around Rs 1.5 arba in July 2016 and as of July 2018, the turnover stands at Rs 24 crore. The daily turnover has decreased by more than 80%. Taking this discussion further, we can say that the turnover has decreased by more than Rs 438 arba per year. This humongous capital had to flow back to the stock market for NEPSE to go back to green again. 

In last two years NEPSE index value has decreased by around 36%. Considering the NEPSE index movement of 1590 points from the low of 298 in 2012 to the high of 1888 of 2016, without an any major retracement,the fall of 690 points can be taken normal. As it makes a retracement of around 43% and the retracement upto 60% is considered conventional in stock market.

The matter of concern as of now is the turnover and we hope after the introduction of full fleged online trading system in NEPSE, the range of secondary market will expand to the common people all around  the country and to the all Nepali working abroad. As a result capital flow in the market could increase and we could see daily turnover of few arba.