Profiting from the Bulls within a Bearish NSE Market

Any investor or trader who has traded or invested in the Nigeria Capital market over the last 5 years must have experienced the bull and now the bear market. While most NSE investors have experienced or know the terms bull market and bear market by now, every investor seems to have a different definition of each.  Worldwide, some people consider any period of rising prices a bull market.  Other investors believe that  a bull market is when stock prices are generally rising for at least a period of six months, while the popular view is that any 20% move up in an index represents a new bull market, while a 20% decline constitutes a bear market. Technically however, most chartist represent that in a rising market environment, if a stock or an index continuously trade above its 200 day cumulative simple moving average, the stock or index is in a bull mode. Based on the aforementioned definitions, it means that the NSE is in a complete bear market.

As highlighted above, the NSE all share index close of 21,404.75 on September 8, 2009 represents a decline of 44,966.4 or 67.7% from its March 2008 peak of 66371. Also, the all share index is down 9,954, or 31.7% from its 2009 high of 31,357.24. The NSE all share index and majority of the listed stocks in NSE have underperformed in the last 15 months.  As noted in the graph below, the NSE all share index has been in the bear mode since October 2008 with the exception of a brief period in June 2009, when the NSE all share index almost breach the 200 day CSMA as highlighted in the graph below.

As the title reads “Profiting from Bulls within a Bear NSE Market” is real. There is always a bull within a bear market and the current NSE bear environment has not been an exception. Although the NSE has been in a bear territory (i.e., under the 200 day CSMA) since October 2008, there are NSE listed stocks in the bullish modes that have dramatically outperformed the NSE all share index in 2009. There usually bullish stocks  in a bearish environment, because during a bearish market, there is always a flight to safety. It appears that in the current bear market, the “composite investors” decided to rotate into areas that are considered “safe” (i.e., building, breweries, and certain food & beverage) stocks. Some of these bullish stocks include Nigerian Breweries (NB), Guinness, BCC, WAPCO, CCNN, and Nestle. 

As highlighted in the graphs below, all of these stocks are trading above their 200 day moving averages and are using their 20 day CSMA as support as they trend upwards.

The CCNN is  N3.93k or 51% above its 200 day CSMA of N7.69k. BCC is N15.07k or 53.0% above its 200 day cumulative simple moving average of N28.43K. WAPCO is N8.70k or 39% above its 200 day cumulative simple moving average of N22.30k. NB  is N13.75k or 31.8% above its 200 day cumulative simple moving average of  N43.24k.

Conclusively, as can be seen from the above discussion, it is possible to make money even in a bear market, but investors must do their homework. Although the aforementioned stocks are all in bullish modes, the stock with the best risk/reward ratio is CCNN. On September 10, 2009, the stock closed at N11.62k approaching N11.77k, a former 2009 high it attained on June 2, 2009. If CCNN closes above N11.77K, it will create a good entry point, but if it fails to close above this price, it will create a double top and a temporary resistance. I recommend buying CCNN above N11.77k, but place your stop (around N11.50K) in case it retreats due to early profit taking.

Finally, I will continue to watch NB, a stock I recommended as a buy above N54.98K in  June 2009. A break above N60 will be an excellent entry price for the next move up.