Weekly Market Summary by @thatnepseguy, @nepsetrader, and @saral_lagani: NEPSE Breaks Out from Downtrend Trendline, What Can We Expect in the Short Term?

This article is co-authored by @thatnepseguy, @nepsetrader, and @saral_lagani (Instagram accounts). While the latter two are employed at the portal, Sharesansar welcomes @thatnepseguy for his debut article. Special attention is given to avoid analysis bias and only mention widely-accepted practices.

The NEPSE index gained for four days and lost for a day in the five trading days this week. The market is closed on Fridays and Saturdays every week. The NEPSE index closed at 2,692.47 this week after a gain of 167.97 points (6.65%). The index had closed at 2,524.50 last week with a minimal gain of 0.17% from the week before that.

This week, the index went as high as 2,699.94 and as low as 2,529.88, hence witnessing volatility of 170.06 points. In the previous week, the index had seen a volatility of 128.06 points.

Analysis of Trend

The NEPSE index is up 23.58% compared to the same date last year. However, it has lost more than 15% from the all-time high of 3,198.60 created around four months ago. Nonetheless, the index has bounced back around 19% 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 negligible wicks on either side. Last week, the weekly chart had formed a small-body red candle with relatively longer wicks.

The first trading day (Sunday) this week formed a promising green candle, a gain of 2.39% on the index. The index kept gaining in the next two trading days. The bullish sentiment then seemed to have fizzled out, as the index lost 30.77 points on Wednesday. However, the bulls dominated the trading session on Thursday, and the index gained 43.29%, dismissing the previous day's loss. This can be seen in the daily candlestick chart, as Thursday's green candle has engulfed Wednesday's red candle.

Price Action

Though the NEPSE index was on a downtrend for multiple months, we can see a change in market structure this week. We can see a series of higher highs (HH) and higher lows (HL), signaling the likely possibility of an uptrend.

The red line in the figure (considered resistance) has been broken. Thus the chart indicates the possibility of an uptrend.

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 61.14. Meanwhile, the RSI reading on the weekly chart is 50.64.

On the other side of things, the MACD line is positive, i.e. above zero in the daily timeframe, with the MACD reading at 17.21. Until this week, the MACD line had crossed over the signal line but was trading in the negative zone. While a MACD crossover anywhere is considered a bullish signal, the crossover is more decisive if the MACD reading is positive.

“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.”

This week, the MACD line has entered the positive zone in the daily timeframe, hence indicating a general optimism in the market.

Moving Average

The NEPSE index has historically respected the EMA 50 as support and resistance. NEPSE recently broke over the 50 EMA which was acting as resistance as of now. After the breakout, it is likely to act as support. We can be confident because the EMA 200 is in confluence with 50 EMA, denoting double support near the 2,600-zone.

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. During this past week, there was a rise in the NEPSE index along with an increase in volume. This may be a positive sign for upcoming days.

Support and Resistance

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.

With these considerations, the nearest support levels of the NEPSE index are at the 2600 and 2503 levels respectively. On the other side of things, considerable resistance can be seen at 2744 and then at 2856.

Fibonacci Retracement

From Fibonacci retracement levels for support (swing low to high), the probable support levels are 0.23 (2595 to 2600 zone), and 0.3 level (2530). The confluence of 50 EMA serves as double confirmation, indicating strong support near the 2600s level.

Technical Analysis Wrapup

There is a gap in the NEPSE index at 2580-2600 on the daily timeframe. According to generally confirmed rules in technical analysis, the gap is likely to be filled. There has been a recent breakout in the NEPSE index from the Downtrend trendline and 50 EMA. All lie near the 2600-zone. Thus, after a breakout, chart analysts may have to be patient enough for a retest in area 2580-2600.

Weekly Market Summary of NEPSE:

More than 4.13 crore unit shares worth Rs 21.27 Arba have been traded through 2.69 lakh transactions this week. The current market capitalization of NEPSE stands at Rs. 3,803,346.26 million.

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

The NEPSE index increased by 6.65% this week. The Development Bank sector gained the most this week with an increment of 10.87%.

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 0.85 followed by Dibyashwari Hydropower Company Limited (DHPL) and Shikhar Insurance Company Limited (SICL) with 0.55 and 0.50 beta values respectively.

Top Ten Gainers of the week:  

Madhya Bhotekoshi Jalavidyut Company Limited (MBJC) is the top gainer of this week. MBJC closed at Rs. 235.6 with Rs. 89.2 (60.93%) 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:
Chhyangdi Hydropower Company Limited's (CHL) price has decreased by 11.11% and its LTP stands at Rs. 417.80.

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

Himalayan Distillery Limited (HDL) is the top traded company of the week. A total of Rs. 1.02 Arba worth of HDL shares were traded this week.

Top Buyers Brokers of the Week:

Naasa Securities Co.Ltd (Broker No- 58) was the top buyer broker of this week and it has bought stocks worth Rs 1.20 Arba.

Top Buyer Brokers Top 10 Bought Companies:

Top Seller Broker of the Week:

Naasa Securities Co.Ltd (Broker No- 58) was the top seller broker for this week. The brokerage firm has sold stocks worth Rs 1.13 Arba.

Top Seller Brokers Top 10 Sold Companies:

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

SSpro