A Technical Analysis of NEPSE: Heading to 400?

A Technical Analysis of NEPSE: Heading to 400?
By NepaliEconomy.com

NEPSE, the stock market index of Nepal is on a free fall. From the peak on August 31, 2008 to February 11, 2010, the index has declined 58%, from 1,175 to 497.

There are three phases of the decline.
• First, it declined rapidly from 1,175 to 630, which represents 50% retracement. It tested that level twice forming a double bottom, and started to move up.
• Second, it failed to break a strong resistance at 730, which represents (a) 200-day moving average (b) 38.2% retracement (c) previous support. Having failed to break that resistance, the trend reversed and the index headed down. In a technical analysis parlance, it formed a classic "bear flag".
• Third, it temporarily stalled at 530, which represents (a) 61.8% retracement (b) previous resistance. When it failed to hold that level bouncing off 50-day moving average, it continued on its downtrend.

The next level to watch is 486. If the index does not hold that level, then it is heading to 400.

The worst performing sectors between August 31, 2008 and February 11, 2010 were financials - development banks (-66%), finance companies (-58%) and commercial banks (-57%) (Table below).

In terms of market cap, 137 companies that were present on both September 16, 2008 and January 14, 2010 lost Rs. 134 billion in market value. The biggest loser in market cap terms was Nepal Telecom, the biggest company on NEPSE. It lost Rs. 46 billion. In relative terms, Nepal Share Market lost the most, losing 86% of its value (Table below).

Note
• NEPSE is supposed to be market cap weighted index but it does not seem so. Market cap has declined 27% between September 16, 2008 and January 14 but index declined twice that amount, not sure why?
• Volume data for NEPSE is not available. Volume and prices trends make technical analysis (TA) possible. Doing a TA without volume data is like walking on one leg.