TIME TO EXHALE FOR THE NSE
In my March 2, 2009 article, titled ?The NSE appears to be in recovery mode?, I indicated that the downtrend in the Nigerian capital markets appear to have been halted temporarily because for the first time since April 7, 2008, the failed rally of the NSE index did not breach the low of the previous failed rally. This is a phenomenon technicians call a "higher low? and an indication that the market was putting in a bottom.
Subsequently, the NSE index turned around on April 15, 2009 after touching a 52 week low of 19804. After bouncing off the 52 week low, the NSE index had a sustained six (6) weeks rallying closing at 30,924.97 on June 2, 2009, a gain of 11,121.4 or 56.1% from its most recent 52 week or 2009 low of 19,804 before running into head winds on June 3, 2009
However, although the index experienced its first decline on June 3, 2009, indications that the recent rally was weakening emerged in the closing prices of stocks on June 2, 2009 as most stocks were unable to close at their intra-day highs.
At the beginning of the current rally, I received several inquiries about the rally being a "Dead cat bounce", My perception was that the rally was real and not a dead cat bounce because majority of the NSE listed stocks were above their 20 day and 50 day cumulative simple moving averages (DCSMA), and several stocks were attaining new 52 weeks highs. Nevertheless, as of Tuesday (June 2, 2009), I noted that we have come too far and very fast in a very short period, and to quote the famous former Chairman of the United States Federal Reserve Bank, it was beginning to look like? irrational exuberance? all over again. Traders are again beginning to throw caution to the wind; forgetting the last few months when there was a lot of "weeping and gnashing of teeth"
Although the index has declined by 1,410 or 4.6% in the last two days, the current rally is still on course as the NSE index is still above its 20 DCSMA and the 50 DCSMA of 26,812 and 22,988.28 respectively. Technically, until the NSE index breaks above its 200 DCSMA of 31,520 and sustains it, the Bull Run will still have some head winds ahead of it. However, a fall below the 20 DCSMA will derail the current rally.