For a while now, I have not make my index/stock selections and outlook public even on my blog but to client’s only.
After the early January 2016 selloff in the Nigerian Stock Exchange, we were able to pick the bottom early and so far enjoyed the three legs of the upward waves for both the NSE All share Index, Sector indexes and individual equities strictly using technical analysis approach. I have decided to share brief thoughts on this amazing analytical approach with practical application to some equities and indexes traded on the Nigerian Stock Exchange.
In the simplest term, technical analysis is the study of market action (price, volume and open interest) in order to forecast future price trend. Technical analysis therefore studies the market participant’s (speculators and investors) behaviors/psychology which reflects in the price trend, so whatever informed the decision of the investing populace (fundamental, seasonality and or other reason) market action tells it all and we see it more clearly in the charts. Market action thus moves in trend and history would always repeat itself i.e. the investing communities in any market have a way of behaving in somewhat similar manner when previously identical market pattern surfaces. This makes TA a self fulfilling prophesy. There are many books on the subject, so read more
The Timing Advantage of Technical Analysis
Among the many numerous benefits of using technical analysis, timing is one of the edges this approach offers to its users. Investing whether for short, medium and or long term requires a better timing for both entry and exit, a good and viable reason for wanting to invest in any equity would only be profitable if such decision is done at the right time. “A GOOD AND VIABLE STOCK AT THE WRONG TIME LEADS TO LOSSES”. Using TA tools would guide the investors when to accumulate and distribute their holdings. It gives a guide into how the market participants react to key market levels and pointer into what to do when such reactions are been seen (Resistance and support methodologies are great here). Another greater advantage of TA is its flexibility to either serve as a standalone tool or a complementary approach to an existing system.
Let’s Go Straight to the NSE And Some Selected Stocks Using Technical Analysis Tools
Using a top-down approach, we would run through the index down to some selected equities. The chart below is the NSE All Share Index daily timeframe, we can see that the downward trend in the Nigerian Stock Exchange ended in the month of January 2016 when the index touched 22,331 basis points and thereafter did not retest or breach this level in the month of February, March and April 2016 (this is a higher low an indication that the downtrend may have ended) also at this points technical indicators began pointing to an early accumulation phase (though the fundamentals were blink with no real reason to buy into Nigerian equities), volume began showing more bargaining interest picking-up gradually and some of oscillator indicators indicating a positive divergence.
In our newsletter to our clients in January and February 2016, we recommended equity accumulation with short term bullish outlook. Aggressive investors began buying while conservative ones waited for our confirmation signal seen when the supply/resistance trendline was breached on the 3rd of May 2016 at 25,865.5 basis points.
Looking forward, as the half year results would be trouping in the technical analysis tools indicates a more likely range bound trading within resistance 31,241 and 29,125 as such short term speculative activities is expected to be the order of the day in the coming sessions. The expectation is for more upside trend in the index for the reminder of the year (timing is important)
Read update on 1st July, 2016 to be included is sector and selected individual equity analysis/ outlook. To subscribe to our premium newsletter, mail trendonomicsng@gmail.com or call 09092133294. Also read more posts at adeshinacfte.blogspot.com
