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February 2016 Stock Taking

Published on: 2016-02-23 12:03:30     1785 times read    0  Comments

Muliple Factors Pushing Index Up

Nepse Figure

Trend Analysis
The benchmark index increased further in the course of last month. The Nepse index gained a staggering 79.08 points (or up 6.77%) to close at 1216.11. Few reasons have caused the market to be bullish last month. Firstly, the bullish momentum was triggered by an increase in the demand in the insurance sector. The announcement of insurance sector to discourage cash dividends has increased the bullish sentiment of the investors. Secondly, mandatory dematerialization of the securities, which has limited the supply of many stocks in the market, has further caused the market to climb up. Thirdly, the IPO refund of HIDCL seems to have increased liquidity in the market. Furthermore, the political concerns seem to be gradually subsiding as well. The index is moving well above the 50-day moving average (MA) and 200-day MA, indicating that the overall market outlook looks good.  

Resistance and Support

The benchmark index created history by breaking its previous high of 1205. Nepse crossed its resistance level of 1160 during the first half of the month. Towards the end of the month, Nepse crossed 1205 level and reached an all time high of 1222.43 level. Currently, the new immediate support and resistance levels stand at 1170 and 1240 respectively. 

Nepse Trend Indicator

The MACD is a momentum oscillator formed by using two different types of moving averages, which provides specific buying or selling signals. When a MACD line crosses above the signal line, it is considered to be a positive sign and indicates a time to buy, and vice-versa. 

The Macd and the signal line, at the beginning of the month, stood at 11.18 and 7.42 respectively. Both the lines moved upward and parallel to each other throughout the month. The distance between the lines stood at an average point of 2.81. This signifies a positive growth in the market. However, towards the end of the month, the distance between the lines narrowed down. Both the macd, as well as the signal line, ended at 23.35 level at the end of the month. Once the signal line crosses above the macd line, it could mean a possible decline in the bullish momentum in the market.

b. RSI

RSI is a form of leading indicator that is believed to be most effective during periods of sideways movement. Such indicators may create numerous buy and sell signals that are useful when the market is not clearly trending upwards or downwards. 

RSI at the beginning of the month stood at 62 level. In the course of the month, it gained a considerable 12.72 points to close at 74.72 level. Such number indicates a high buying pressure in the market. During the second half of the month, the RSI hovered around the late 70’s and early 80’s zone. It seems that the buying pressure in the market will fall soon as the RSI displays a declining trend.

c. Bollinger Bands

The Bollinger Band is a technical indicator that consists of a moving average (21-day) along with two trading bands above (upper band) and below it (lower band). The bands are an indication of volatility, which are represented by calculating standard deviation. 

The benchmark index moved further up towards the upper Bollinger band, indicating an over-bought condition in the market. By the end of the month, the index fell down towards the mid band. Such movements show a decrease in the buying pressure in the market. The distance between the upper and lower bands is still wide, which signify a presence of market volatility.

Volume Indicator (On-Balance Volume)
On-Balance Volume (OBV) is a momentum indicator that relates volume to the current price of the index or security. It measures buying and selling pressure at the market. It acts as a cumulative indicator that adds volume on up days and subtracts volume on down days. If a price increase is supported by OBV, it confirms an uptrend, whereas if a price decrease is supported by OBV, it confirms a downtrend. 

The OBV (On-Balance Volume), as well as the Nepse index, rose significantly as pictured in the graph. Such a rise in the index, supported by a rise in the OBV, validate the bullish momentum in the market. After reaching a record breaking height of 1222.4, Nepse is currently at a correction phase. The average monthly volume transactions increased significantly to NPR 47.89 crores from NPR 37.43 crores the month prior. Such a rise in the index and the volume indicates that Nepse could possibly continue its bullish trend.

The above mentioned technical indicators suggest that the benchmark index experienced a bullish momentum in the course of last month. The index gained 79.08 points (or up 6.77%) to close at 1216.11. The index is moving well above the 50-day and 200-day moving average, indicating the overall market outlook looks good. The RSI still indicate a presence of buying pressure in the market. The signal line could cross above the macd line, which could mean a decline in the bullish momentum. The Bollinger bands still show an increase in the market volatility. The new support and resistance level stands at 1170 and 1240 respectively. 

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