InvestIQ: Profiting from the Bulls within a Bearish NSE Market

Profiting from the Bulls within a Bearish NSE Market
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Chukwumah Biosah on 30/11/2010 01:07:00
 
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.