Market slides into oversold region, ripens for another round of rally
Category: Cap Mkt Sentiments
Thursday, June 07, 2012 / Proshare Reserach
The purpose of this report is not to celebrate the N494.73billion loss the market recorded in the last 23 trading days - but to put you, the investor, journalist and analyst - on ‘standby mode’ as the market appears ripe technically for another round of rally as its oversold posture is likely to incite active bargain(s) in the market - soon as the midweek sentiment analysis reveals.
Recently, the Nigerian Capital Market peaked at 22,665.99 on May 4th 2012 with a YTD of 9.34% gain before the profit-taking sessions began - which apparently has over-stretched given that the market has plunged below the mythical 22,000 psychological line in recent times (specifically on June 1st 2012), recording consecutive four weekly losses due to unrelenting sell pressures and an increase in market price volatility on the back of such profiteering.
The outlook recorded is in line with our position as we had observed in our sentiment analysis report dated May 4th 2012 (Sentiment Analysis Report – W/E May 04, 2012) - “The position of the All Share Index (ASI) at its top i.e. overbought region as revealed by RSI would suggest a possible short term market correction - with the market direction being influenced by profit taking anytime soon. This points to further market price volatility as sectors are now equally split between the bulls and bears”.
In addition, our analysis of market sentiments and activities on the bourse revealed that the Nigerian market slipped into a reversal mode recently, which data suggests may extend further as the lack of positive news has given it a support; and may continue to stoke the consistent pessimistic and speculative trading postures by investors/traders.
It is evident from the data interpretation that the market RSI which measures market momentum, is currently trading below the oversold line at 26%, falling from its top of 84.22% - a figure recorded on May 4th 2012. This posture revealed that the market has slipped into an oversold region and remained depressed, due to the suppressed postures suggesting a possible bargain drive.
Buttressing this further, the market moving averages suggest that the market is bearish in both the short and mid-long term period as the key benchmark indices of 21,114.68 closed below its short and mid-long term moving average of 21,739.69 and 21,239.69.
Technically, the oversold posture of the market is usually a bargain signal for smart investors as this reveals cheap postures of most active and liquid stocks on the bourse.
This is where most of the bottomed-out stocks are likely to experience impressive patronage as we had already noticed recently in the Healthcare sector while most small and medium cap stocks continued to triumph amid an increased sell tendency while the big caps still recorded a sell pressure.
A cursory look at market trend so far in the year r2012 reveals an impressive and bullish performance between the periods of early April to early May 2012 while the market peaked at 22.665.99 on May 4th 2012, trading above a 13-months high before the strong reversal trend hits - a normal market phenomenal barring all unforeseen circumstances/events.
During the period, market appreciated by 9.75% in 22sessions, representing N678.60billion increase in market net value- a significant performance against weak YTD performance of 9.34% and Q1'2012 performance of -0.38%.
However, the market has lost above N400billion to the reversal trend in the last 23 sessions as sustained sell pressure towards blue chips in medium and big capitalisation category continued to depress market performance into the oversold region.
The year-to-date market performance plunged from 9.29% gain recorded on May 8th 2011 to close weaker at 1.85% at the end of today’s session while the key benchmark indices may hit below 21,000 psychological line if the big caps continue to fall as we have observed recently.
Be that as it may, we envisage that another round of bargain trend is not in doubt as we remain bullish towards the market - while the oversold postures of the overall market and some value stocks on the bourse may appear as a good buy signal for intelligent investors.
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