December 19, 2008 3524 VIEWS
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Last week the NSE index was firing on all cylinders as it skidded to its 52 week and 3 year lows. For the week ended December 12, 2008, although the capital market was only open for three days, the performance of the NSE index and several individual listed stocks were dismal. There continues to be indications that the current downtrend is going to be with us for the foreseeable future. Several “blue Chip” stocks tested and attained new 52 week lows. Companies like Zenith Bank, First Bank, PHB, Guinness, etc are trading at new lows and it does not appear that there is any respite in site.  
At this point it is beginning to look as if the bottoms for majority of listed stocks in the NSE are still several naira away from their current prices. Additionally, it is concerning that leaders in specific sectors especially the financial sector are beginning to break through support levels that acted as solid barriers in previous sell offs.  A review of the price trend of Zenith Bank, Guinness, and First Bank Nigeria Plc (FBN) reveals further lows for these stocks and the market.

First Bank Nigeria (FBN)

In my last week’s article, ”How far can the NSE index and stocks decline”, I noted that First Bank Nigeria Plc (FBN), is a resilient stock in the banking sector that has tested its price support of N20 several times and have resisted to close at this strong support. Additionally, I noted that a 3% close below this major support will send the stock price to about N15.00k level which is a natural support.

Unfortunately the stock price broke below a major support and violated a double bottom on Thursday (4/12/08).  At the current price, the stock price is below its 10 day, 20 day, and 50 day cumulative simple moving averages of N20.482k, 23.16k, and N23.68k respectively.  Reviewing the Friday (12/12/08) trading pattern from the Japanese candle stick perspective reveals more ominous sign. The pattern was a doji star, the price of the stock gapped down leaving a N0.70k gap between the previous day close and Friday’s open. The stock had a very tight trading range. It opened at N18.20K, a price below the previous day close of N19.00k, had an intra-day high of N18.30K, but closed at N18.05k, the lowest price of the day. As I previously noted, this stock is headed lower, and my advice for long-term investors is to be patient because they can buy the stock at lower price.

 Zenith Bank

Zenith Bank, leading stock in the banking industry has been in persistent decline since November 17, 2008 after the failure of most recent bullish run. Since the reversal, the stock is down N12.60k, or 41.1%.  At the current price (N18.05k), the stock is trading at a new 52 week and a two year low. Additionally, at the current price, the stock is below its 10 day, 20 day, and 50 day CSMA of N21.041k, 23.90k, and N27.58k respectively as highlighted in the graph below

Reviewing the Friday (12/12/08) trading pattern with the Japanese candle stick methodology reveals an ominous sign. The trading pattern was a gravestone doji, the price of the stock gapped down leaving a N0.20k gap between the previous day close and Friday’s open. The stock opened at N18.80K, a price below the previous day close of N19.00k with an intra-day high of N18.80K, but closed at N18.05k, the lowest price of the day. This indicates that there were more sellers than buyers for the stock.  My project is that this stock will test and probably break N15.47k, the bonus adjusted price support.

Guinness Nigeria Plc

Guinness, a leading stock in the Brewery sector has been in persistent decline since November 18, 2008 after the failure of the most recent bullish run. Since the reversal, the stock is down $36.23k, or 33.2%. At the current price (N73.00k), the stock is trading at a new 52 week and a three year low. Additionally, at the current price, the stock is below its 10 day, 20 day, and 50 day CSMA of cumulative simple moving averages of N81.00k, N90.28k, and N97.02k respectively as highlighted below.

Reviewing the Friday (12/12/08) trading pattern with the Japanese candle stick methodology reveals a troubling indicator. The trading pattern was a long-legged doji, the stock opened at N70, a price below the prior day close of N72.50k traded to an intra-day low of N68.89k before trading to an intra-day high of 76.10k, but closed at N73.00k. This was a wide trading swing and it showed a battle between buyers and sellers since the stock closed at almost the middle of the trading range. It is considered indecision between sellers and buyers in technical terms.  We will watch trading in this stock during the week of December 14, 2008 to see which group wins this battle. With the current market trend and the stock trading below its major technical indicators, I am betting that the bears will eventually win this battle.

As I look at the general market there continues to be evidence of severe weakness. For the week ended December 12, 2008, the Nigerian Stock Exchange index (NSE) declined 693 or 2.4%. The index close of 27,958 represents a decline of 38,412 or 57.9% from its 52 week high of 66,371. At the current level, the index is below its 10 day, 20 day and 50 day CSMAs’ of 33,240.5, 37,690.9, and 51,805.9 respectively.  At the current level, I do not see any light at the end of the tunnel.
There has to be significant intervention by the CBN, or capital market regulatory agencies to turn the current trend around. The market is starved of liquidity, because the banks have stopped extending margin facilities and most investors who have lost significant portions of their portfolios due to the protracted market downtrend are hesitant to expose more funds to the market.
END.
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