InvestIQ: Nigerian Stock Exchange  (NSE) Technically Confirms a Bullish Mode

Nigerian Stock Exchange  (NSE) Technically Confirms a Bullish Mode
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Chukwumah Biosah on 05/02/2010 00:42:00
 
On February 3, 2010, the NSE all share index technically confirms a bullish
trend by breaking above 23,392, its 200 day simple moving average (DSMA) as
highlighted in the graph below.
As shown in the graphic relationship between the NSE all share index and the 200
DSMA below, the breach of the index above the 200 DSMA is the first time in 15
months, and it indicates finally that the NSE is technically in a
recovery(bullish) mode and there is a change in the market dynamics.
Although the NSE all share index have confirmed a bullish trend, it appears that
the buying has been very selective.  The buying has concentrated on sectors such
as Banking, Breweries, Building Materials, Food/Beverages, while stocks in other
sectors (i.e., Agricultural, healthcare, insurance sectors, etc ) have not
participated in the market rally.
Although the market dynamics appears to be positive, most stock charts show that
investors are not being overly speculative, the rallies have been selective, and
the average rallies have lasted only an average of about 4 days before a
retreat.
Stock Selection Process
Since this rally has been selective, investors should focus on stocks that are
breaking out with very little over head resistance if they want to participate.
For example FBN is a stock that appears to have significant price resistance,
while Access Bank appears to be breaking out.
First Bank Nigeria (FBN)
Since September 2009, the stock price of FBN has had problems breaking above
N16.00k. In January 12, 2010 the stock hit N15.93 and retreated, again on
February 4, 2010 the stock price hit N15.96 and recoiled again creating a
double. The N16.00k price level is a significant price resistance for FBN, while
the N14.00k is a significant price support.  As I noted in my earlier article,
“Profit Taking Not Responsible for NSE January 2010 Pullback”; FBN will have
to trade above N16.50k price level, and sustain the price to resume definite
uptrend. While, I expect this stock to eventually break above this N16.00k price
level, investors should be aware that the fair value of FBN based on their most
earnings report is about $15.22k.  Therefore, the decision for an investor is
probably to buy the stock at the current level and wait for it to breakout, or
find another stock that has already broken out, or breaking out.
Access Bank
Investors can always find stocks that are preparing to break through a
resistance by watching the relationship between the price and volume together.
Technically, greater volume should take place in the same direction as the
prevailing trend. Technicians believe that volume precedes price, meaning that
the loss of upside pressure in an uptrend or downside pressure in a downtrend
actually shows up in the volume figures before it is manifested in a reversal of
the price trend. For example, for the last two weeks, the Access Bank’s
volume/price trend confirms this phenomenon.
The price broke out of a 6 weeks consolidation on January 29, 2010 on a volume
(49 million shares) almost 4 times higher than the average daily trading volume
of the previous two weeks. Although, the stock retreated on Friday losing
N0.48k, or 5% to close at N9.12k, the stock still has the potential to move
higher.  The pull back to the mid N8.00k price level is probably an opportunity
to take a position in this stock. As shown in the graph below, Access Bank is
trading above its 20 DSMA and 200 DSMA. Additionally, the stock is using it 20
DSMA as support as it moves higher reflecting a sign of strong relative
strength.  With all the aforementioned good news for value investors, it does
not appear that there is a large space to move on the upside, since the fair
value of this stock is around N11.00k.
In conclusion, although, the NSE all share index has broken above its 200 DSMA,
indicating a bullish trend, there is a possibility that the index will pull back
from its 200 DSMA if the trading volume and traders convictions evaporates. 
Therefore, it is not time for excessive speculation. Investors should know the
fair value of each stock before buying, and should not stray far away from the
true value of any stock.