People associate the secondary market with bulls and bears. They get elated when they witness the bull charge upward, appreciating the book value of their portfolios. They get distressed when they see the bear charge downward, depreciating the worth of their stock holdings. For the majority, the market is only about the bulls and the bears every green on the screen indicates the bullish moment while every red indicates the bearish moment.
But the market is not only about these two trends. The third important trend is called a non-trending or sideways market. Such a market moves horizontally, as if traveling within a rectangular box. This situation occurs when the forces of demand and supply come closer to balancing out each other. The buyers are less interested in buying above a certain price tag, creating resistance, while the sellers are unwilling to sell below a certain price tag, providing support. Neither the buyers nor the sellers are in control of the prices. The non-trending or sideways market has no clear direction. This phenomenon occurs after a prolonged bull or bear run ends or pauses. Such a market continues for some time, providing opportunity to both the buyers and the sellers to consolidate their investment or trading positions.
The sideways market ends with breakouts, either above or below the ranged market, providing a direction. The direction could either be a continuation of the previous trend or a reversal. Since September 22, NEPSE has broken its downtrend trend and entered into a non-trending zone.
The last eight weeks saw the bourse move between a high of 1157.80 and a low of 1121.10 in intra-day trades. The gap of 36.7 points might have motivated a few swashbuckling traders to exploit the situation by venturing to profit as the index moves between the highs and lows within the box. But this gap narrowed since September 30, with a new high of 1152 and a new low of 1127. The new gap is a measly 25 points.
The trend might be unfavourable for day-traders. The risk to return ratio for quick trading is high. But for the investors both individuals and institutions it would be one of the many cautious entry points. The general feeling in the market is that this could be a time for accumulation. Still, the index does not reflect any aggressive buying stance.
Smart money would already have entered the market through a systematic accumulation process. It will be buying at each strong support zone and waiting for further bargain or clear indications of an upswing. With the majority of companies declaring and distributing the return from the previous fiscal year of 2075/76, the market has entered into the traditional off-season period. Dismal reports of many blue-chip companies for the first quarter have further triggered a decline on the demand side.
This signalled a continuation of the bearish trend, at least until the second quarter reports do not present good results. But if the current sideways market continues for another month or two, the demand could outweigh the supply and we could witness the start of the reversal process.