Market Trend

Nepal Stock Index (Nepse) witnessed one of the biggest gains during the May 21 - June 20, 2014 period. The benchmark index of secondary market soared 82.08 points (9.72%) to close at 926.5.  During the period, the index peaked at 938.41 (June 17, 2014), which is also the highest point in 2014, and saw minor corrections. Along the index average, daily turnover also increased from NPR 387.2 million to NPR 488.8 million, an increase of more than a quarter (26.24%). This increase in trading volume was instrumental in propelling the market to new heights. 

 

The linear trendline of Nepse index’s chart shows a very optimistic scenario about the current market trend. However, this has also pushed the market to overbought territory in the near term. Nonetheless, the overall long-term market scenario remains bullish as there has been no indication of any trend reversal. Moving forward, the market volume will play an important role in determining whether Nepse can sustain the current momentum. 

 

Relative Strength Index (RSI)

Relative Strength Index is one of the leading indicators of technical analysis 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. 

 

For the review period, RSI hovered within the neutral zone and stood at 61.81 scales on May 21, 2014. Since then it rose steadily to cross above 70 levels indicating that the market has reached overbought scenario on June 2, 2014. After that the RSI slightly pulled back and again started rising steadily reaching 86.22 levels on June 17, 2014. However, along with the corrections seen on Nepse, the RSI ended at 74.80 levels on the last trading day and is still maintaining in the overbought zone.

 

 

Moving Average Convergence Divergence (MACD)

The MACD is a momentum oscillator formed by using two different types of simple 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. 

 

During the review period, the MACD indicator followed a similar trend to that of RSI indicator. Initially, the MACD line and Signal line were both in a declining trend. However, this trend began to reverse and eventually the MACD line crossed above the Signal line on June 01, 2014 indicating a bullish sentiment in the market. Since then, the MACD line, which represents a shorter term moving average, gathered pace in the upward direction. On the last trading session, the MACD line and Signal line closed at 23.13 and 19.88 points respectively.

 

Bollinger Bands

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

 

During the initial sessions of the review period, Nepse stayed slightly above the mid band. However, as the trading volume began to rise, the momentum began to shift towards the upward direction pushing the Nepse to upper band. Since the upward momentum in the market was continual, Nepse surged the upper band suggesting an overbought scenario during the last trading week. The diverging bands suggest very high volatility in the last two weeks. 

 

End Note 

The secondary market of Nepal increased by 82.08 points (9.72 percent) to close at 938.41 points during the review period. Trading volume played a major role in helping Nepse maintain its current uptrend. The RSI currently stands at 74.80 levels indicating that the market is in overbought zone. The divergence of MACD line and Signal line indicates there is still bullish sentiment in the market as a result of increased momentum in the near term. The Bollinger Bands also indicates an overbought scenario in the stock market. As a result, there may be possibility of some corrections in the market in the days to come. In overall, the long-term trend of the market still remains bullish though there may be minor volatility in the near term.