Technical analysis of the QE index

09/03/2014 08:54 AST

The QE Index continued its slide for the second consecutive week losing around 165 points. The index started the curtailed week on a bearish note and caved under heavy selling pressure on Wednesday; it breached the important supports of the 21-day moving average and the 11,400.0 psychological level suffering its largest single day loss in the past six months. However, Thursday was a different day as the index witnessed a gap-up opening and erased all its Wednesday’s losses, reclaiming the 11,400.0, the 21-day moving average and 11,600.0 levels within one trading session as bulls were back in action. Technically, the index has strong support near 11,520.0. The medium-term trend is up and intact until it holds onto the support of the 11,520.0 level. A continued push toward 11,660.0 is possible considering the current higher push. Moreover, a rise above this level may indicate that the correction is over and further confirms the bullish move toward the 11,750.0-11,800.0 levels. On the flip side a drop below the 21-day moving average as well as the 11,520.0 levels will get traders thinking that the index may continue its downmove signaling a bearish sign. Meanwhile, both indicators are providing mixed signals suggesting the likely continuation of volatility.

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.

Gulf Times