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

Reiterating the Notion That the AMC Is Not a Panacea for the Nigerian Stock
Exchange
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Chukwumah Biosah on 24/06/2010 07:26:00
 
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 12th, 13th, and 19th 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.
Conclusion:
The direction of the NSE is currently uncertain.  Technically, it is not very
promising. It appears that there is currently a capital flight from the market;
judging from the dwindling daily volume trend. Even some of the large cap stocks
have seen their volume dry up, or volume increased on sell off. A recommendation
to remain on the sidelines until the indicators improve will not be out of place
at this time.