Technical analysis of the QE index

Technical analysis of the QE index

The QE Index ended last week on a bullish note, tagging a new 52-week high of 9,730.34, but later witnessed some profit-booking on Thursday to close at 9,706.57. The index tested the 9,600.0 level on Tuesday and Wednesday, but rebounded from its weekly low of 9,590.88 registering an impressive rally to breach the ascending trendline and the 9,700.0 psychological level. The index successfully defended the 9,600.0 level on both of these occasions and recovered to close higher. Notably volumes have also increased from last week, thus indicating a rise in buying interest. We believe the index may continue its upmove and advance higher targeting the 9,800.0-9850.0 levels. The index has support for a further higher move from the RSI that has moved into the overbought territory in a bullish manner. However, traders are advised to keep a close eye on how the index reacts around 9,700.0 as it could provide an insight into its near-term direction (upward or reversal). On the flip side, if the index fails to make any further headway and retreats below the 9,700.0 level, it may retest the 9,600 psychological level, which may act as a strong support area.                 

Definitions of key terms used in technical analysis

RSI (Relative Strength Index) indicator – RSI is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between 0 to 100. The index is deemed to be overbought once the RSI approaches the 70 level, indicating that a correction is likely. On the other hand, if the RSI approaches 30, it is an indication that the index may be getting oversold and therefore likely to bounce back.

MACD (Moving Average Convergence Divergence) indicator – The indicator consists of the MACD line and a signal line. The divergence or the convergence of the MACD line with the signal line indicates the strength in the momentum during the uptrend or downtrend, as the case may be. When the MACD crosses the signal line from below and trades above it, it gives a positive indication. The reverse is the situation for a bearish trend.

Candlestick chart – A candlestick chart is a price chart that displays the high, low, open, and close for a security. The ‘body’ of the chart is portion between the open and close price, while the high and low intraday movements form the ‘shadow’. The candlestick may represent any time frame. We use a one-day candlestick chart (every candlestick represents one trading day) in our analysis.

Doji candlestick pattern – A Doji candlestick is formed when a security’s open and close are practically equal. The pattern indicates indecisiveness, and based on preceding price actions and future confirmation, may indicate a bullish or bearish trend.