Share market continues to fall after retesting

KATHMANDU, SEPTEMBER 15 : The Nepal Stock Exchange (NEPSE) index, which has been steadily declining for the last few days, dropped again on Sunday, the first trading day of the week. Although the market rose at the beginning of the trading day, it gradually declined by midday. By the end of the day, the NEPSE index had fallen by 50.73 points, closing at 2,637.79 points.

On April 26, the NEPSE index was at 1,960 points, and it steadily climbed to 3,000.81 points by August 15. However, the market has been in a continuous bearish trend, starting from August 18. Over this period, the index has fallen by 370.7 points, and trading volume has decreased significantly—from 28.83 billion rupees to 10.33 billion rupees.

As both the NEPSE index and transaction volume dropped, new investors have shown disappointment. However, experienced investors view this as a market correction. Tara Prasad Phullel, acting president of the Share Investors Association, noted that it's normal for the market to decline for a few days after a rise. "Many people are now using technical analysis, and this has led to a 'wait and watch' approach in the market," he said.

Phullel also claimed that money hasn't exited the market. "People still have funds, but they expect the market to drop further," he added.

Similarly, Bharat Ranabhat, former president of the Nepal Stock Brokers Association, stated that the market's decline isn't as significant as it may seem. "If you look at the average, the market hasn't really dropped that much. Moving from 3,000 to 2,600 points isn't a major fall," he said.

Ranabhat explained that the market had risen sharply in a short period, which is why it also declined suddenly. "The market shot up quickly. If it had risen gradually, the decline would have followed a similar pattern. Given the current situation, it's not accurate to call this a major drop," he added.

Market Retest and Reversal

NEPSE has now formed a "Head and Shoulders" pattern, which, according to technical analysis, signals a potential reversal of the current trend. This pattern suggests that the market may continue to decline for a while.

The said pattern consists of three peaks. The heights on the right side mirror those on the left, with the middle peak being the highest. After the first peak, the market declines slightly, then forms another, higher peak. After another dip, the market rises again to form a third peak, which is lower than the second. From this third peak, the index falls further, breaking through a key support level, briefly retests the breakout point, and then continues to decline.

In NEPSE's case, the first peak was at 2,800 points, the second (the "head") at 3,054 points, and the third at 2,859 points. After falling from the first peak, NEPSE bounced back from 2,648 points to form the head at 3,054 points. The market then dropped to 2,681 points before rising to 2,859 points and reversing again.

This pattern has created a breakout point at 2,592. The market already retested this breakout point last Thursday when it briefly rose, but on Sunday, the market began to decline again.

Relative Strength Index (RSI)

The recent trend in NEPSE's Relative Strength Index (RSI) suggests a "wait and watch" strategy. As the market has declined, the RSI is also trending downward. Technical analysis indicates that it’s better to wait and observe the market rather than making buy or sell decisions at this time.

In the RSI, a reading of 70 signals a sell, while 30 signals a buy. Currently, NEPSE's RSI is close to 40. Based on this, it would be wise to hold off on transactions and wait for further market developments.

Pivot Points

The current pivot table in NEPSE shows that the market will find its first support at 2,570.90 points. If the market continues to decline, the second support is at 2,392 points, and the third support is at 2,153 points.

The market's first resistance is at 2,988.19 points, with the second at 3,226 points, and the third at 3,405 points.

According to technical analysis, the pivot table is a reliable tool for identifying potential support and resistance levels in the market.

Moving Average

The moving average pattern in NEPSE shows that the market is currently in a bearish trend. Fourteen trading days ago, the moving average line crossed the NEPSE index from below, which signals a potential decline according to technical analysis.

On Sunday, the moving average line touched the index again. If the index bounces off the 2,637 support level and moves above the moving average line, the market could continue to decline. However, if the index falls below the line, the market may start to rise.