March 01, 2010 3139 VIEWS
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“Market rode on the back of blue chips to marginal gain of 1.79%”

The NSE index which began 2010 with very promising up trend appears to be turning into a whimper. Although the NSE all share index gained 1,713 or 8.2% in January 2010, approximately 1,233 or 72% of the gains were made in the first half of the month. Since then and up till the end of February 2010, the index has struggled to get a traction on the upswing envisaged, closing the month on a gain of 1.79%. This suggests that the index has gone into a holding pattern by trading in a very tight range as highlighted in the graph below:

 

The review conducted revealed that the market outcome achieved in the month far removed from the expectations at the beginning of the month from both ends of the investment market spectrum – investors and operators. Indeed, while most stocks have picked up or either stopped their erosion, the rate of recovery has been hampered by new volatilities; perhaps a distortion of trends owing to the re-entry of speculators in the market.


Although, the NSE ASI is not increasing by leap and bounds, it appears that some individual stocks within some sectors are being favoured by traders/investors as indicated by volume and price.


February witnessed some activities which ought to have indicated a measure of improved liquidity situation and investors interest in the market, as measured by the rising profile of the volume and value of market transactions as seen in the upbeats recorded on some days in the month. The market however could not sustain the uptrend which appears to have been influenced by some investors selling into any uptrend to get out of their old losing positions. Reviewing the charts, the trading volume does not reflect convictions by traders. It seems that traders are unwilling to chase or buy stocks above certain price thresholds.


Although the NSE ASI showed intermittent signs of a breakout, it is having problems breaking above its 200 day moving average. Breaking above the 200 day SMA and sustaining it will demonstrate technically that the index is no longer in a bearish mode.


 


From the Index moving averages graphically explained above, it is clear that the ASI at the moment is trading below its 20 days and 200 Days Moving Averages, but above its 50 Days Moving Average.


The 20 Days Moving Average further lends credence to the declined performance of the ASI in the month over the previous month trend. The 50 Days Moving Average trend is adduced to the recent upbeat (though not consistent) experienced in the market, mostly boosted by the more pronounced upbeat recorded in January.


The fact that the Index is trading below its 200 Days Moving Average is an indication that the bearish trend is still relatively apparent and existent, for trading above 200 Days Moving Average and maintaining the tempo would be suggesting a market recovering from bears grip.


The index performance trend showed indications of decline in the market growth for the month; revealing that the investors’ enthusiasm and optimism of the first month of the year proved pyrrhic.


The enthusiasm could only be sustained for the first four trading days in the month of February after which the bears-rule became the recurring pattern to everyone’s consternation.


The appreciation recorded in the month was mainly facilitated by the trend in the blue chips stocks in the Banking, Building, Food and Beverages and Conglomerate sectors.  

 


February 2010 Market Dynamics

The market dynamics as graphically illustrated below showed the appreciation and depreciations on the daily basis. The palpable fears and cloudy investment climate that reigned in the month was responsible for the dynamics recorded.
 


This is becoming a market of selective performance rather than a broad base rally which meant that trading in the market was motivated by a keen watch for stocks experiencing increased volume and price – with traders riding the trend.


It would appear that despite the occasional positive signals seen, suggesting an imminent liquidity situation, the reality appears to be no more than an illusion at this time as the rallies could not be sustained over the month (indeed year-to-date). Investors, it would appear, are justifiably more careful with ‘trusting’ the stock market with their investible funds – which explains the downward trends in the midst of the upbeats.


The unaddressed ‘loss of confidence’ in the market, accentuated by the increased political, business and investment risk profile of the country has combined to impact the market’s expected upswing.


Further, the unfulfilled promises of the regulators to improved the oversight and operating environment in the market is yet to be seen, or perhaps has faltered with a constant shifting of the goal post.


The operating environment is unsettling and provides little direction as to economic policy, regulatory framework and financing of the productive sectors of the economy to provide retail and institutional investors with the required liquidity.

The NSE current bearish market trend will be two years old on March 5, 2010, and technically one would have expected that most of the aggressive sellers should have been washed out by now, but evidence abounds that some sellers are still hanging on to recoup some of their losses.
 

For the Nigerian capital market to get back on the road to recovery (a subject of our yet to be released NCM 2010 report); we must have a situation where the buyers overwhelm the sellers. It does not appear that a lot of investors are willing to or have been sufficiently motivated to take a brave stand at this point.  


Technically, certain positive indicators are beginning to emerge – the movement of the ASI is clearly indicative of a market that has bottomed out (though in danger of a major reversal if the protracted political crisis cum stagnation of the economy is left unaddressed), and the resurgence of the trading volumes.


The market in Q1 end and Q2 2010 is thus expected to move above the current levels as we ensure a sustained oil production targets, take major structural changes that encourages integrity and transparency at the NSE and SEC, reduce the country political risk considerably and devote time to set a clear cut direction for the economy; any capital market performance benchmarks.


Failure to develop a roadmap for achieving a market recovery and secure a buy-in of the stakeholders, it appears that the anticipated ‘speedy’ recovery from Q3 2010 may be delayed or compromised.


The long bearish trend has left most investors badly wounded and unwilling to invest in the capital markets.


The market regulators appear not to get this point.


We however remain hopeful and encourage investors to take the long view mindset in reviewing their portfolios and new engagements.

This report, which allows you to appreciate the market in a more personal way; and empower you to engage in a much more intelligent manner – covers the following areas:




Take time to read and share with us your thoughts on the market, especially your personal realities to guide us in subsequent reports that continues to help engage your professional financial advisers, more intelligently.


E-mail our analysts at research@proshareng.com or analyst@proshareng.com for more information.


We value your feedback and comments.


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ISSN 1597 - 8842 Vol. 1 No. 27

 

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