Market Trend

The secondary market witnessed one of its biggest gains over the last 30 days as the benchmark Nepse index leaped by 16.02 per cent to close at 1074.97 points. This is the highest point reached by Nepse in the last six years after its downward journey following all time high record of 1175.38 points on August 31, 2008. For the last 2 years, the stock market witnessed an increasing trend not only in market index but also in the turnover (volume) averaging Rs. 624 million per day during the review period. The rising volume and daily turnover suggest that the confidence of stock market participants is mounting high. The market momentum became highly bullish in comparison to earlier period as listed companies began publishing their preliminary financial statements of FY 2013/14. This has assisted Nepse index in remaining well above the trend lines as well as the 50-days moving average. 

 

RSI 

Relative Strength Index (RSI) is one of leading indicators of technical analysis that is believed to be most effective during periods of sideways movements in the market. Such indicators may create numerous buy and sell signals that are useful for investors when the market is not clearly trending upwards or downwards. 

 

The RSI indicator currently stands at 88.28 level and has been hovering around the overbought zone for most of the review period. On July 13, 2014, the RSI reached as high as 90.24 levels indicating highly overbought scenario. Now it has slightly pulled back. However, high levels of share volume and turnover have been sustaining this momentum indicator still in overbought zone. It is not unlikely for the indicator to maintain at this range when there is huge volume to back the bullish trend of the market. 

 

 

MACD 

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 trend and indicates a time to buy, and vice-versa. 

 

Now, MACD indicator is also concurrent with the bullish trend in NEPSE. During the first part of the review period, it stayed very close to signal line. However, MACD line has been trending higher than the signal line through most of the period. Since July 1, 2014, the MACD line began diverging away from the Signal line indicating increasing short-term momentum in the market. This widening gap between the MACD and signal lines indicates that the market sentiments are bullish.

 

Bollinger Bands

Bollinger Bands is also a technical indicator that consists of a 21-day moving averages along with two trading bands-upper band and lower band. The bands are an indication of market volatility, which can be obtained by calculating standard deviation. 

 

During the initial phase of the review period, Nepse saw some corrections and moved towards the mid-band. However, as it was quickly backed by high demand and started upward momentum, which helped Nepse to return towards the upper band. In recent times, the upper and lower bands diverged greatly indicating that the volatility in the market has been higher during the review period. 

 

End Note 

Nepse reached this year’s highest level on July 21, 2014. Although there were a couple of instances of minor declines over the period, the market remained mostly bullish. There was renewed interest in shares in the secondary market as transaction volume rose significantly over the period. The average daily turnover during the review period remained at Rs. 624 millions, higher by Rs. 135 million than the previous month. The RSI indicator points to an overbought market while the MACD shows that the momentum is still in the positive direction. The Bollinger Bands suggest an increased volatility in the market as well as an overbought scenario. Overall, there has been no change in investor psychology. They remain highly bullish towards the stock market for the near term future.