KATHMANDU: The NEPSE index is currently struggling to establish a clear direction, with both bullish and bearish forces appearing equally strong in the market. As a result, the market has been unable to make a strong move either upward or downward.

In this context, the index has recently produced two back-to-back technical patterns: the “M” and the “W”. Within just 12 trading days, NEPSE first formed an M pattern and then a W pattern, two formations that are generally considered to signal opposite market trends.

The M pattern, also known as a double top, forms when the index reaches nearly the same high level twice and then turns downward. This is often interpreted as a sign that buying momentum is weakening and sellers are beginning to gain control of the market. Analysts generally view it as a bearish signal.

The W pattern, or double bottom, is typically considered a bullish signal and is often seen as an early indication that the market may be attempting a recovery. However, for this pattern to be confirmed, the index must break above its previous nearby high and continue moving upward. Although the W pattern has appeared, it has not yet confirmed a reversal in market trend.
Technical analysts say the major barrier to further gains is the moving average resistance. NEPSE has recently attempted to rise twice but has faced resistance around this level. The index is currently trading below both the 50-day moving average and the 200-day moving average.

The 50-day average has been moving closer to the 200-day average and appears to be on the verge of crossing below it. If that happens, it would form a death crossover, which is generally considered a medium- to long-term bearish signal.

At the same time, analysts caution that NEPSE often experiences relatively frequent crossovers, so even if a death crossover appears, it may be premature to declare the market fully bearish. What it does suggest is that selling pressure has increased in recent weeks.

A decisive move above the 200-day moving average would strengthen the validity of the W pattern. If such a breakout is accompanied by stable trading activity, it could indicate the beginning of a more bullish phase.

Until then, technical indicators appear to support a wait-and-watch approach rather than aggressive positioning. The bearish signal from the earlier M pattern has not been fully invalidated, while the subsequent W pattern has not yet shown enough strength to confirm a sustained bullish reversal. Whether NEPSE can break above the moving-average resistance or turn lower again is likely to determine the market’s next direction.

Despite the uncertain technical picture, several fundamental factors continue to support the possibility of a market recovery. Investors are closely watching the publication of listed companies’ financial statements, which have begun to show signs of profit growth. Lower lending rates have improved earnings prospects for hydropower companies, while the current timing still offers investors the possibility of receiving dividends in the near term. Liquidity in the banking system remains ample because deposit and lending rates have stayed low for a prolonged period.

Preparations for rights-share issuance by commercial banks, including NIC Asia, have also drawn market attention.
On the other hand, several developments are weighing on investor sentiment. Recent searches conducted at the private residences of industrialists and businesspeople have created unease in the business community. Rising non-performing loans in microfinance institutions have raised concerns about their dividend capacity. Additional uncertainty has emerged from discussions surrounding the external audits of ten commercial banks, with former finance minister Rameshwor Khanal suggesting that the situation may be more serious than previously understood. Investors are also watching the possibility of pressure on banks’ capital adequacy, even if some institutions may still be able to distribute dividends. Political tensions between the Prime Minister and the Finance Minister, including separate meetings with business leaders, have added to the uncertainty. Although some hydropower companies have started reporting profits, many still remain in loss, making immediate dividend expectations difficult.

For now, the market appears to be caught between improving liquidity and earnings expectations on one side and concerns about banking health, political uncertainty, and weak technical confirmation on the other. The next decisive move in NEPSE will likely depend on which of these forces gains the upper hand.