Weekly Summary: NEPSE Gained 6.04% This Week, Technical Indicators Approaching Intermediate Uptrend Conditions But Can Momentum Continue?

Fri, Dec 24, 2021 3:10 PM on Weekly Analysis, Stock Market,

-ShareSansar

The NEPSE index gained for three days and lost one day in the four trading days this week. The market was closed on Sunday on the occasion of Yomari Punhi. The NEPSE index closed at 2,520.23 this week after a gain of 143.49 points (6.04%). The index had closed at 2,376.74 last week with a fall of 2.99% from the week before that.

This week, the index went as high as 2,542.11 and as low as 2,346.96 hence witnessing volatility of 195.15 points.

Analysis of Trend

The NEPSE index is up more than 30.21% compared to the same date last year. However, it has lost more than 20% from the all-time high of 3,198.60 created around four months ago. Nonetheless, the index has bounced back around 11.53% after reaching the nearest intraday low of 2,259.63 on December 13 (most recent pivot low).

Candlestick Charting

On the weekly candlestick chart, this week's market movement has formed an extended green candle with relatively shorter wicks on both sides. (Last week, the weekly chart had formed a candle similar to the hammer candlestick, but with an additional upper wick.)

The first trading day (Monday) this week formed a red candle, a loss of 17.93 points on the index. Then, the next two trading days had resulted in the formation of green candlesticks, the latter one more extended than the former. However, the last candle formed on Thursday had a small, red real body, likely indicating confusion and indecisiveness in the market.

Moving Averages

On the positive side of things, the index chart has closed higher than the 20-day Exponential Moving Average for the first time since November 22. It is also higher than the 5-day EMA.

However, the 5-day EMA is still below the 20-day EMA. 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 had been losing until a few days ago.

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 downward trend in the stock. The index is still a long way below the 200-day SMA.

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 48.96. The RSI reading breaking above 50 would indicate intermediate-term upwards. Meanwhile, the RSI reading on the weekly chart is 42.91.

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 -66.68. Nonetheless, the MACD line has crossed above the signal line, even though both are negative, hence indicating the shallow possibility of bullish sentiment in the market.

However, the MACD crossover would have been more decisive if the MACD reading was positive. This quote is worth mentioning:

“Traders who attempt to profit from bullish MACD crosses that occur when the indicator is below zero should be aware that they are attempting to profit from a change in momentum direction, while the moving averages are still suggesting that the security could experience a short-term sell-off. This bullish crossover can often correctly predict the reversal in the trend, but it is often considered riskier than if the MACD were above zero.”

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 index has briskly broken up from the resistance at 2,500 (this level was deduced both in terms of price action and psychological level). The immediate support is at 2,346.96 and then at 2,259.63.

Meanwhile, the most significant resistance may be observed at the 2,670 and then at the (2,840 - 2,880) range.

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 broke up from the resistance zone at 2,390.93 this week. 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 2,390.93, and then at 2,143.11.

Weekly Market Summary of NEPSE:

More than 2.68 crore unit shares worth Rs 13.86 Arba have been traded through 1.86 lakh transactions this week. The current market capitalization of NEPSE stands at Rs. 3,543,507.89 million.

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

The NEPSE index increased by 6.04% this week. Manufacturing and Processing sector gained the most this week with an increment of 15.92%.

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

Narayani Development Bank Limited (NABBC) has the highest monthly Beta value of 0.63 followed by Multipurpose Finance Company Limited (MPFL) and Barun Hydropower Company Limited (BARUN) with 0.61 and 0.56 beta values respectively.