Technical analysis of the QE index

Technical analysis of the QE index

The QE Index extended its phenomenal run for the sixth straight week, recording a new all-time high of 12,961.56 surpassing its previous September 2005 all-time high of 12,892.76. The strong gains on Monday and Tuesday were largely responsible for the index rallying more than 400 points. The index witnessed gains on every single trading session apart from Thursday, which witnessed profit-booking. The index is experiencing a bull market rally, making higher tops and higher bottoms and is currently trading in unchartered territory with no resistance level. We believe the index has strong momentum going in and may continue to extend its rally tagging new highs. On the downside, the index has support near 12,900.0, below which 12,770.0 may provide a good buying opportunity. Meanwhile, both momentum indicators support the index for a further higher move by remaining in the bullish zone with no immediate trend reversal signs. Thus, traders may adopt a buy-on-dip strategy and continue to remain bullish.

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.