It was another bloody day on the Nigerian Stock Exchange (NSE). Red was splashed all over the place as 66 stocks took a plunge. Only 17 managed to close higher.
After the bloodbath of Monday and Tuesday, Wednesday offered some respite with 1.6% decline. Alas, it was short lived. Volume dipped more than 60% on Thursday and the All Share Index lost 2.3% to close at 54,908, the lowest point for the year. So far the index has lost 5.3% for the year. The loss for the week stands at a cumulative 9.1% perhaps the biggest lost in any four days for a decade. So where do we go from here?
The last year to resemble a bear was 2005 when the All Share Index only managed 1% gain for the year. Most of the destruction was done between February and early April. The All Share Index dropped to its lowest point for the year 20,661 on April 6th. By then the market was down by 13.4%.
The reversal started in late April but by the end of May, the momentum was lost. A full recovery began in July. The Index rose to 21,911 by the end of July closing with a cumulative year loss of 8.1%. The worst was over. From then onwards it was a steady climb until 4th November when an all time high 26,137 was achieved with the market returning 9.6% for the year. It was a remarkable turnaround given the bloodbath in the first quarter. However, this gain was not carried till year end as Mid November to December recorded declines to close the year almost flat with a 1% gain. So what can we learn from all this?
The worst will probably be over in the next two weeks as we approach July. We expect a lot of quarterly announcements to lift the market. Most of the panic selling would also have subsided and cooler heads will begin to take control.
For the strong, there are some good opportunities in the market at the moment. For the cautious I will advice a wait and see attitude for at least one more week.
I am looking forward to July. It can't come sooner.
Thursday, June 19, 2008
Wednesday, June 18, 2008
Bears on the Prowl - Again
After last week’s freeze on downward movement of share prices on the NSE, the bears returned in full force on 16th June. The NSE All Share Index lost 2.6% on Monday 16th June. Another 2.6% was lost on Tuesday and by Wednesday all the gains of the previous week were eroded as the Index closed 56,205, down 3.08% for the year. A year low.
Obviously the ill advised freeze of last week did not restore investor confidence. I hope the NSE DG has learnt something and will leave nature to take its course in the market.
The decline on Wednesday was a mere 1.57% which was lower than the previous two days of the week. Volume was also higher compared to the previous two days. So perhaps the worst has passed. However, Thursday is traditionally a low volume day. Consequently, we might not see any recovery until Friday.
For the long term investor, this temporary decline should not be a source of sleepless nights. We have had 8 consecutive bull years. So a bear is due. In 2005, the market returned a mere 1%. There were very good buy opportunities. GTB was one of them selling at lower than the 2004 Public Offer price. I bought it and rode it to 300% gain in less than 2 years. GTB is again selling at less than the GDR price of last year. I smell an opportunity for the long term investor.
My plan for the year was a modest 25% gain for my portfolio. However, this appears to be too aggressive considering market performance so far. I have therefore revised my goal down to 15%. Lets hope this can be achieved.
Meanwhile I await trading result of 19th June. It promises to be an interesting day.
Obviously the ill advised freeze of last week did not restore investor confidence. I hope the NSE DG has learnt something and will leave nature to take its course in the market.
The decline on Wednesday was a mere 1.57% which was lower than the previous two days of the week. Volume was also higher compared to the previous two days. So perhaps the worst has passed. However, Thursday is traditionally a low volume day. Consequently, we might not see any recovery until Friday.
For the long term investor, this temporary decline should not be a source of sleepless nights. We have had 8 consecutive bull years. So a bear is due. In 2005, the market returned a mere 1%. There were very good buy opportunities. GTB was one of them selling at lower than the 2004 Public Offer price. I bought it and rode it to 300% gain in less than 2 years. GTB is again selling at less than the GDR price of last year. I smell an opportunity for the long term investor.
My plan for the year was a modest 25% gain for my portfolio. However, this appears to be too aggressive considering market performance so far. I have therefore revised my goal down to 15%. Lets hope this can be achieved.
Meanwhile I await trading result of 19th June. It promises to be an interesting day.
Saturday, June 14, 2008
Technical Analysis
I have a confession to make, I don’t know much about Technical Analysis. Recently I decided to remedy this and bought a highly recommended book. The book is Technical Analysis: The complete resource for financial market technicians by C.D. Kirkpatrick and J.R. Dahlquist. I have just completed a first reading of the book. It is quite interesting although a bit dense at times. However, it is still easy enough for the beginner.
According to the authors Technical Analysis is the study of past market data, mainly price and volume data. This information is then used to make investing or trading decisions. It is based on one major principle: trend. The basic assumptions are:
• Stock prices are determined by the interaction of demand and supply
• Stock prices tend to move in trends
• Shift in demand and supply cause reversals in trends
• These reversals can be detected in charts
• Emotions and investor behavior influence security prices. The two main emotions are fear and greed
The technicians mantra is the trend is your friend. The strategy is to buy a security at the beginning of an uptrend at a low price, ride the trend and sell when the trend ends at a high price. However, implementing this strategy is quite difficult according to the authors.
The chapter on sentiment is quite interesting. Market sentiment refers to the emotions of market participants. For example in a typical bull market, at the peak of the optimism, most investors have put all their available money in the market. Therefore there is no new money available to drive the market higher. The market has therefore peaked and the only way is down. At the height of the emotion, prices deviate substantially from fundamental values, a correction is due.
I think this happened recently in the Nigeria stock exchange (NSE). The NSE All Share Index began to decline (loosing 3% for the year) and the management acted in a bizarre fashion to stop the decline on 9th June. They achieved this by freezing fall in prices for a week. This was a panic reaction and although I gained from it, I sincerely hope NSE management will not do this in the future. This amounts to price fixing and does not bode well for the long term health of the market.
The book is quite a useful addition to Technical Analysis literature. I will recommend it to anyone who is interested in Technical Analysis. I have picked up a few things I will try out but my conclusion is that I simply do not have the time to fully exploit technical analysis. I still have my day job to worry about.
According to the authors Technical Analysis is the study of past market data, mainly price and volume data. This information is then used to make investing or trading decisions. It is based on one major principle: trend. The basic assumptions are:
• Stock prices are determined by the interaction of demand and supply
• Stock prices tend to move in trends
• Shift in demand and supply cause reversals in trends
• These reversals can be detected in charts
• Emotions and investor behavior influence security prices. The two main emotions are fear and greed
The technicians mantra is the trend is your friend. The strategy is to buy a security at the beginning of an uptrend at a low price, ride the trend and sell when the trend ends at a high price. However, implementing this strategy is quite difficult according to the authors.
The chapter on sentiment is quite interesting. Market sentiment refers to the emotions of market participants. For example in a typical bull market, at the peak of the optimism, most investors have put all their available money in the market. Therefore there is no new money available to drive the market higher. The market has therefore peaked and the only way is down. At the height of the emotion, prices deviate substantially from fundamental values, a correction is due.
I think this happened recently in the Nigeria stock exchange (NSE). The NSE All Share Index began to decline (loosing 3% for the year) and the management acted in a bizarre fashion to stop the decline on 9th June. They achieved this by freezing fall in prices for a week. This was a panic reaction and although I gained from it, I sincerely hope NSE management will not do this in the future. This amounts to price fixing and does not bode well for the long term health of the market.
The book is quite a useful addition to Technical Analysis literature. I will recommend it to anyone who is interested in Technical Analysis. I have picked up a few things I will try out but my conclusion is that I simply do not have the time to fully exploit technical analysis. I still have my day job to worry about.
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