The state of the Nigerian stock market for the past 10 weeks till date suggests it only takes a pretty big risk-taker to inject fresh funds.
However, defiant attention to scary stock market reports in print and electronic media and a critical examination of the broad market’s pricing action and trading pattern may make one heave some sigh of relief as there are some encouraging signals that the worst could be over. There is a convergence of opinions between investment analysts and other market participants that the current situation presents a great deal of upside potentials such that discerning investors can re-enter/reposition for medium to long term investment horizon.
Various analyses reveal that a number of blue chip companies now trade at abysmally low price relative to their intrinsic worth. Some of these stocks are trading far below their support level / 52-Week Low prior to the capital raising exercises in 2007 and the bullish era that prevailed till 2nd week in March 2008.
A few amongst these stocks are GTBank: N23; UBA: N29.99k; Zenith Bank: N41; Dangote Sugar: N29.99k; Platinum Habib: N22.61k. There are strong sentiments and fundamental rationale for imminent reversal as institutional investors, fund managers, foreign investors may stage a come back to take early advantages.
An important prerequisite to successful trading is an adept understanding of the stock market. Mapping out an effective trading strategy is dependent on one’s ability to play the market, which also requires an extensive grasp of how the market behaves.
It is very important for traders/investors to learn how to select stocks and after buying, monitor their performance. They should also develop the ability to decipher the overall market. This is important because the health and performance of the market influence the performance of individual stocks in the short term.
Stock markets exhibit daily, weekly, monthly, quarterly and annual behaviour. Similarly, stock markets respond to exogenous and endogenous impulses. In view of this, it is important that a trader/investor understands the state of the market (bear market, bull market) because each one of these factors can affect any stock.
Market behaviour and trends can be monitored through the major market statistics and indices. These indices include Market Capitalization, All Share Index and the various indices employed by investment analysts and fund managers. The primary objective is to highlight the underlying trends and use them as benchmark against which performance of investment portfolio can be measured.
To keep abreast of market behaviour, market participants should monitor and observe the following:
1. Market Capitalization
2. All Share Index
3. Trading Volumes
4. Price High and Low
5. Fund Manager Indices
Bull and Bear Cycles:
When the stock market undergoes a significant price decline, it generates a climate of fear. When a market bottom is reached, extreme pessimism reigns.
At that time, a bull market is imminent. As modest price gains are made, fear starts to recede but as further gains are made, caution sets in. However, as significant price appreciation takes place with the bull market continuing, investors tend to forget the pessimistic bear market days. At that time investor attitude can be described as confident and euphoric. By the time a top is reached, most investors remain convinced that the market will keep going up indefinitely. The moment speculators start taking profits, prices continue to nose-dive and bandwagon effect sets in. At that point, the bear market starts.
As the market starts declining, the same emotions characterise the market but in the reverse direction – confidence, caution, and fear. Finally, when the bottom is reached, the feeling is widespread that prices will continue to decline even further. At that time, the next bull market is ready to start. However, other exogenous factors such as regulatory pronouncements, changes in macroeconomic policies can also trigger a bull/bear market.
Recognising Bullish Signs:
The followings are some of the probable signs that may usher in a bullish market regime.
• Decreasing interest rate
• High inflation
• Emergence of bargain price because of excessive pessimism
• High level of cash in circulation
• Few significant price declining
• Decreasing flow of primary market activities (new issues can adversely affect the secondary market’s supply/demand balance).
• More buyers than sellers
• Accumulation taking place as indicated by high volume on up days and low
volume on down days.
• Net Asset Per Share (NAPS) at above market price
Do you have any question concerning investment, how you can join investment club, buying shares, dividend, share certificate, stockbrokers, registrars, you want answers to? Send your questions via text to or call 08058767059. Email: amadasunese@nigerianobservernews.com. All questions will be treated comprehensively on this page.
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