It is no longer news to report on the woeful performance of the Nigerian Stock Market this year. The benchmark All Share Index (NSEASI) fell by 9.8% last month alone. The trend of the latest earning reports released by quoted companies (apart from a few outliers) is disappointing to say the least. Try marketing an average Nigerian to Invest in stocks today-good luck!
Basically, nothing to get you excited about the stock market….. And that’s why I’m excited!
Market reversals tend to happen when sentiment is at extreme positions (when everyone is not looking). However, it is important to note that extreme sentiment is not enough; we also need other factors to confirm that indeed the bulls are returning to the market.
In this post, we look at another factor- momentum. Below is a chart of the NGE (a dollar based ETF that tracks the NSE30 index). It is more than 90% correlated to the NSEASI and is traded mostly by foreign investors. (Thank you to TowerSec Research for pointing this out)
So what do we see in the figure above, the index (the upper chart) is falling but the momentum indicator (the lower chart) is gradually rising tell us that the sellers are running out of steam and some buyers are possibly loading up on Nigerian stocks.
So While the News is all bad about the Nigerian Stock market, the bulls are quietly gaining momentum. Are we good to jump in and buy now? Hell no! We are still watching for one or two factors to give us a good risk: reward trade. Want to know what those factors are? Follow this space for updates as they happen!