The QE Index extended its gains for the fifth consecutive week. The index started on a bearish note, witnessing profit booking on Sunday and Monday. However, it bounced back strongly in the latter part of the week, recovering from a low of 12,045.88 to close at 12,550.98, up 1.2% for the week. This was a nice display of strength as a sustained buying interest pushed the price higher. The QE Index is witnessing strong momentum and is currently on a long-term bull run. The index has broken above its resistance level of 12,514 and Thursday’s intra-day high of 12,678 will be the next strong resistance level. On the downside, the index has support near 12,375.0 followed by its next important support level near 12,220.0. The MACD continues to trend higher, implying continuation of the uptrend. However, the RSI has just given a negative divergence, as the QE Index made a new high, while the RSI did not. This is concerning, as it points towards a correction in the near term.

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.