Reiterating the Notion That the AMC Is Not a Panacea for the Nigerian Stock Exchange

In reference to an earlier article I wrote in November 2009, titiled “AMC will not be a panacea for Nigerian Stock”, I noted that the fortunes of the NSE will necessarily not turn around by just passing the AMC. A review of the current market climate indicates that my prediction appears to be materializing.  The downtrend of the NSE has continued in spite of the passage of the AMC. Additionally, a couple of weeks ago, the NSE regulators postponed the N1 Billion Naira capitalization requirement for the stock brokerage firm in anticipation that the postponement will reverse the downtrend. It now appears that both of these measures have not had the impact the capital market operators and regulators had expected.

The Nigerian Stock Exchange started 2010 with a bang which appears to have run into significant head winds.  The NSE all share index attained its high of 28,029.78 on April 19, 2010, representing a $7,190.88, or 34.5% increase from its 2010 low of 20,838.90.

 Since attaining the high of 28,029.78, the NSE all share index has declined 2,274.17 or 8% through June 22, 2010.

I have observed four (4) technically problematic trends.  These trends are discussed below:

(a)    Higher Low & Lower Low phenomenon:

Although the all share index has exhibited sporadic rallies since it started the current decline from the peak of April 19, 2010, each of such successive rally has failed to break above the previous high; thereby creating a high low technical phenomenon, which indicates a bearish trend and lack of confidence in the market by investors (see – b, c, & d as highlighted in the graph below)

Finally, a look last the most recent three (3) pull backs indicates (i.e., 1, 2 & 3) a lower low phenomenon which is very bearish. To break this trend, the current pull back must not fall below the last one (i.e., # 3).

b) Increased Volume accompanied by Subsequent sell off

An important point that should be noted is that the climax of the NSE (28,029.78) on April 19, 2010 was driven by heavy volume. The traded volume for the 5 days prior to April 19, 2010 and on April 19, 2010 was 4.7 billion, the highest traded volume for any other period since January 1, 2010. Precisely, the traded volumes for April 12^th, 13^th, and 19^th were 932 million, 996 million, and 967 million respectively. The increased volume (as indicated by “e: & “f” below) which were accompanied by subsequent sell offs, indicate that institutional investors probably sold into the peak. The trend has been downward since the climax as shown in the graph below:

3) Dwindling Daily Volume

Another worrisome trend is the dwindling volume at the NSE. The average daily volume is down 176% from its peak as shown in the graph below. Furthermore, the recent volume spike has been followed by a sell off.  For example, on June 16, 2010, 506 million shares were trade, but the NSE all share index closed down. Finally, some of the recent high volume traded stocks were stocks that I refer to as non-essential. On April 21, 2010, 349 million shares were traded at the NSE.  If you exclude 86 million Capoil shares, a penny stock trading at 0.51k, only 249 million shares were actually traded.

4) All share Index below its 20 and 50 days cumulative moving averages

The NSE all share index is currently trading below its 20 day and 50 day moving averages of 25,757.13 and 26,659.7 respectively. The Index initially dropped below these averages on May 21 and 24, 2010 respectively. On June 19, 201, the all share index broke above the 20 day average indicating a short term reversal only to slip back below the average on June 21, 2010. Although the NSE all share index is trading above its 200 day moving average, the current all share index trading below the 20 and 50 day moving averages indicates short-term weakness.