Technical analysis of the QE index

Technical analysis of the QE index

It was a short trading week for the Qatari market with only three trading days. The QE index after a positive start to the week, surrendered its gains in the next two trading sessions. The index tagged a new 52-week high during the week, but was unable to move above its resistance level of 10,550, and pulled back below the 10,500 level, to close the week at 10,468.59. The RSI, which had been consolidating near the overbought zone over the last few days, has started to move lower. Further, the RSI has given a negative divergence signal, as the index tagged a new high, but the RSI did not, which is a bearish sign. In addition, the MACD is below the signal line and is trending lower. Thus, both technical indicators suggest that the index may move down from the current levels. On the downside, the immediate support is seen at 10,445. The second strong support level is the 21-day moving average (currently at 10385.65). On the flip side, a close above the 10,530 level may indicate a continuation of the uptrend.

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 reversal.