Technical analysis of the QE index

Technical analysis of the QE index

The QSE Index closed last week on a positive note, rallying around 234 points. The index started the week on a bullish note registering strong gains on Sunday and Monday. These gains helped the index breach its important resistances near 12,770.0 and 12,940.0, tagging a new high of 13,019.55. However, the index trimmed its gains on Tuesday and Wednesday, as traders booked profits at a higher level. On Thursday, the index further gained momentum as the bulls were back in action. We believe the index may extend its rally and advance further, recording new highs until it trades above the 12,940.0 level. However, traders should keep a close watch on 12,940.0 for any reversal signs, as a dip below this level may drag the index back into the congestion zone resulting in range bound movement. The index has its interim support near 12,850.0, followed by a strong support seen near 12,770.0. Meanwhile, the RSI is moving strongly toward the overbought territory, but the MACD is not confirming this upmove, since it is diverging away from the signal line in a bearish manner. Thus, we expect the volatility to continue as both the momentum indicators are providing mixed signals. Traders may remain bullish but are advised to exercise caution and follow strict stop losses, since a possibility of correction is not ruled out.

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.