How does SS Pro calculate Market Confidence? Introducing ShareSansar NEPSE Confidence Meter!

Thu, Aug 30, 2018 1:44 PM on Recommended, Stock Market,

SS NEPSE Confidence Meter is a single indicator that combines all the variables that affect how investors and traders perceive the current stock market scenario, and shows the current market confidence as “Weak”, “Strong” or “Neutral”.

A weak confidence (0-40) shows that investors are not showing interest to participate in the current market condition. If the meter is at the upper level of the Weak band (high 30s), investors are opting for a wait-and-watch approach. They might not have enough confidence for a bullish scenario. As the meter extends above 40, investors and traders are slowly picking up confidence, which is shown by the various indicators ShareSansar uses to form the Confidence meter. However, fall below 30 is a signal that traders are pessimistic about the market, and expect the market to fall further. Any movement over 60 is a strong indication of bullish sentiment. Investors are buying in bulk, investors are buying more than they are selling and more stocks are participating in the bullish zone.

As of August 30th 2018, the Confidence Meter is at 34 on closing basis. On August 29th, the Confidence Meter was at 26.

How ShareSansar calculates NEPSE Confidence:

  1. Stocks’ Price Strength: The number of stocks that are being traded near their 52-week highs or 52-week lows. If the number of stocks near their 52-weeks high exceeds the number of stocks trading near their 52-week lows, more stocks are participating in the bullish momentum. The converse is also true.
  2. Market Momentum: How far above or below is the current NEPSE index trading as compared to its own 7-days, 21-days and 45-days average.
  3. Momentum of all traded stocks: How far above or below are all the stocks trading than their own moving averages. If more stocks are trading above their moving averages, investors have increased sense of confidence in those stocks.
  4. Is the confidence short-term or long-term? : There are several indicators that measure price fluctuations and market sentiments for short-term, mid-term and long-term. The confidence meter takes into account all the time periods.
  5. Support and Resistance Points: How likely is the situation that the market will break its current support or resistance point.
  6. Traders’ Participation: Increase in volume, traded amounts and number of transactions shows increase in confidence.
  7. Advances and Declines: Investors generally have more confidence in the market when more number of stocks end up gaining value than the number of stocks that lose.
  8. Safe Investment Options: In August 2018, the 7-year average annual return of NEPSE stood at almost 23%. However, the return has slumped down to just 8% for the past 4 years. On the contrast, returns from fixed deposits, considered safe haven, increased to almost 13% in this period. Investors are far likely to be pessimistic towards the market when interest rates provided by such “safe” investments are superior than the market.
  9. RSI, MACD movement and their divergences: Signals provided by Relative Strength Index (RSI) movement and Moving Average Convergence Divergence (MACD) along with their actual bullish or bearish divergence signals have proved to be useful in Nepali stock market.
  10. Candlesticks and Chart Patterns: Candlesticks and chart patterns have been followed for centuries to predict investors’ psychology.
  11. Overall Economic/Political/Market Development Scenario: Nepal still has a long way to go when it comes to stock market reforms and development. This also does not mean that investors don’t expect market to turn bullish without any developments. NEPSE reached an all-time high of 1,888 at such a time when there was no online trading, the government was led by a communist party and when the country was going through aftermath of a destructive earthquake. However, when the regulatory authorities or government make decisions, this affects investors’ sentiments towards the market.

For each of the indicators, we look at how far or close they are from their average or normal value. The higher the spread, the more weight it has. All the values are then combined together for a final value, known as the SS NEPSE Confidence Meter.

The Confidence Meter is a part of SS Pro’s Dashboard. It can be accessed at pro.sharesansar.com by obtaining a yearly membership.

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When is the Confidence Meter updated?

The SS NEPSE Confidence Meter changes throughout the trading day. From the moment the market opens at 11:00 AM and ends at 3:00 PM, the meter changes to show realtime changes. Finally, when all the data are gathered by NEPSE at around 3:30 - 4:00 PM, Nepal Stock Exchange refreshes the index, turnover and market capitalization amounts to compile some of the last few trades of the day. SS NEPSE Confidence Index refreshes around 4:15 PM for the final time in the day.

It again changes the next trading day.