Nepse Update #20200228

Nepse Update #20200228

As witnessed in the market NEPSE is in full control of bulls, the market had rallied about 48% from its low at 1102 points. This is the first localised post in the blog which is relevant to traders and investors of Nepal Stock Exchange. I have been watching the market for some time and would like to share a short analysis of NEPSE which might help some people make an informed decision about the market.
This post will focus on an analysis of NEPSE in relation with Fibonacci Extension and Stochastic RSI to find the probable movement of the market in coming days. Market is in between Fibonacci extension level 1 (1524.67) and 1.618 (1680.24). Bulls are outperforming bears at every level with a significant increase in volume from the start of the new rally from its lows at 1102.44. Its been around 68 days the NEPSE is gaining momentum with daily turnover creating ATH every other day in recent trading days. It is above the 200 EMA in a longer time frame which also suggests that this rally is just the beginning of creating new highs.
It is also evident that fundamental of the Nepalese economy is prospering and concerns of COVID-19 fear resulting in some import barriers are further fuelling the upward journey in the market. As a trader and investor in a different class of assets I would like to say, these are times when you should be able to make decisions which can determine your future in the market. Times like these can be challenging to decide due to the market’s movement but as I always say and follow become greedy when everyone is frightened and become fearful when everyone is greedy in the market. Always make an informed decision before trading and investing.
Enough of the chit chat let’s dive into the topic, let me first show you a snapshot so that it will be easy to explain.

These are the Fibonacci Extension levels shown by NEPSE which was drawn from the lows at 1102.44. As shown above you can see Bulls in NEPSE are rallying without hesitation in any levels which shows the sentiment of the market is extremely bullish. The key levels to watch in Fibonacci Extension levels are 0.382, 0.618, 1 and 1.618 along with 0.5. It is evident in the chart itself that it took around 21 days for the Bulls to break 0.382(1369.10) levels in NEPSE. After this market started its upward journey which was then blocked by 0.618(1428.51). After consolidating for only 2 days between 0.5 and 0.618 NEPSE resumed its upward momentum by breaking 0.618 level on the 3rd day which is then slowed by Fibonacci level 1(1524.67) forming a hanging man candle which is often taken as a sign of reversal. The bulls managed to invalidate it with a significant volume increment and resumed upward journey. Also from the Stoch RSI perspective daily and weekly both are in overbought territory. The daily Stoch RSI is overbought since Feb 19 and weekly is overbought for 8 weeks and suggest some pullback before another rally.

There have been healthy corrections in the market from intraday and daily perspective but from the weekly perspective, the market hasn’t seen any correction which is the cause of concern because we are not able to measure the magnitude of correction that might happen once the market starts to take profit. Bear in mind I am not saying the market will turn bearish or collapse but wanted to say taking trading and investing decisions at these levels should involve extensive caution and close view of the market action.

What should be done at these times?

As for me there are two types of market participants 1) New Entrant 2) Existing. It is a good strategy for new entrants to wait and watch(I know this is not easier), as for existing participant it is good to start taking some profit. We are approaching Fib. Extension level 1.618(1680.24) which is also called golden ratio and probable reversal area along with major trendline resistance at 1727.15 the market might see some pullbacks from these levels.

If you are planning to enter the market start entering the market around Fib. Ext level 1 with around 15-25% of your planned investment with a target of Fib. Ext level 1.618 as 1st and 1727.15 as 2nd target. If the market closes below Fib. Ext Level 1 keep buying at each level until Fib. Ext level 0.5 with the same target. If Market continues its rally and breaks 1727.15 level you can enter 50% of your planned portfolio with a target of previous ATH around 1888 with a stop loss just below Fib. Ext. 1.618.

If you are long term investor buying ranges are same but the selling targets will be published in further posts after watching the market sentiment and price actions.

If you are an existing market participant with a portfolio comprising of stocks from previous ATH it is very good to watch these levels as your profit taking levels and opt for deleveraging options. Happy Trading and Investing.

Disclaimer:

The things stated here are solely my views and shall not be construed as investment advice. Investment and Trading are always associated with the risk of losing so always follow strict money management strategy. Do Your research before entering into the market or take the help of professional services offered. Also bear in mind technical analysis is not a holy grail it just records the sentiment of the market in quantitative and graphical form.