Technical Analysis of Banking Index (March 26, 2021)

The banking sector was the slowest sector to rise during the bull run that started last year, but it went up indeed. From the Covid-19 dump in June of last year, the index has gained about 95%.

The banking index comprises all the commercial banks listed in NEPSE. With a heavy market capitalization of the banks and the high number of shares, the Banking index is a healthy representation of the true supply and demand mechanism in Nepal’s capital market.

Trend and Trendlines

The Banking sector is in an uptrend for the last year (long-term) and also in the last three months (intermediate) term. The index has been on a correction for the last month (short term). According to my strategy, this is the perfect time to enter, given that a bullish reversal signal is confirmed.

However, it seems that the index has slowed down a bit, apparent in the formation of a less-steep trendline compared to the trendline of the last year (shown in the figure below).

Nonetheless, the index seems to have bounced back after testing both the trendlines. This might be an indication that the index still obeys the trendlines.

Candlestick Pattern

The index showed signs of reversal after a month-long correction, marked by the formation of a spinning top. A spinning top is simply the candle at the figure below that has a small real body and long lower and upper shadows.

There are numerous names for such candles depending on the length and existence of upper and lower shadows, like hammer, Doji, spinning top, tombstone, etc. Nonetheless, all of them signify the same thing and identifying each distinct type correctly is not important. A candle with a small real body and long shadows at an uptrend or a downtrend signals the possible exhaustion of the trend.

However, it seems that investors are still indecisive even after what looked like a reversal. This is apparent in the appearance of red candles and the index going sideways for the last week or so. To sum up, the candlestick chart does not signal a particular trend at the moment and instead points towards indecision.

Support and Resistance

The index has bounced back from the lower support level and is playing at the upper support level. It has a major resistance level at the recent high, which is also the all-time high of the index.

RSI and MACD

The Relative Strength Index (RSI) is in the range that signifies a weak momentum. On the other hand, the MACD is also in the negative zone.

Nonetheless, both indicators are not very far from entering the momentum zone. The stock might go on an intermediate uptrend if the RSI gains above 50 and MACD becomes positive.

Leave a Comment

Your email address will not be published.