A Step back in time..

Its been weeks perhaps even a whole month since my last post and I hope you have all fared well in these treacherous waters we call markets. The markets here have been “defying the force of gravity” for a while now, that is until sometime last week when the cracks began to appear. While wall street has still not retraced back as far as it should (economic data and market manipulation notwithstanding), I took these last couple of weeks to dig much deeper into our beloved Kenyan financial markets in the hopes of getting a glimpse of what the future may hold for us.

First, lets take a step back in time and take a look at before and after pictures of the NSE 20 share index For a much clearer perspective, I will post the previous monthly, weekly or daily

charts side by side with current charts for ease of comparison.

1. The Monthly Picture

   
   

    

   Notice that in since last month, the market closed lower for the month of July as compared to June’s closing. Even though it appears the market seems to have broken above the SMA 10, this break is simply a function of time as most short-term moving averages have accelerated their downward movement.

   The bearish cross of EMA 30 and MA 50 is cause for alarm as this cross typical signals what may be the beginning of an extended move lower and the fact that the index seems to have flattened out may also indicate that there are clouds ahead and this month (August) may very well be another down month for the markets.

2. The Weekly Picture.

   
   

   In the beginning of July, the market was facing resistance at the 50 day moving average. Both RSI And Williams %R were in over sold territory. In my weekly market musing post dated July 11; I noted that “The weekly NSE 20 share index reveals a market that has been repelled by the weekly SMA 50 resistance level. What we have been experiencing is the expected retracement probably back to the EMA 30 weekly support which am convinced will hold for now.”

   In the weeks that have followed, the index has not been successful in breaking SMA 50 resistance which has continued to exert downward pressure on the index. The indicators are still in overbought territory and are beginning to show signs of breaking down. The only encouraging sign is the fact that we are right now witnessing a “moving average convergence” between MA 10, MA 50 and EMA 30. whenever this happens, you can expect a big move in the direction that this convergence will resolve. Am still confident that EMA 30 will continue to provide weekly support .

3. The Daily picture

    
    

   
   

    
    

   The Daily chart to your left shows the NSE 20 share index as of Jul 10. back then, the index was retracing sharply and I noted that SMA 200 should be adequate support. In the days that follows, we continued to witness weakness as shown on the chart to your right. The markets have been on a low sideways consolidation movement and are right now finding support at the SMA 50. one thing of interest is that bullish SMA 50 / SMA 200 crossover. In classical technical analysis, this bullish cross if considered to be a buy signal.

   Where the markets go from here is anybody’s guess. One thing I have learnt lately is to Act when I see an opportunity. Stocks will move in the direction they want to move and there is nothing that you or I can do to influence or change this (unless we can individually trade with such volume as to dictate price movement ). The only thing we need to keep in mind is to act whenever we see opportunity. Looking at charts can give us a clue as to what a stock or index is likely to do next. After all, the stock market is nothing more than a collection of individual traders, analysts and money managers thoughts, emotions and hopes. And there is no place where group psychology rules the day than in the stock market. The markets are all about perception not reality. Its not how much a company is worth based on its share price, its at what price a buyer is willing to buy , and a seller willing to sell and the agreement they both reach for the trade /sale/ purchase to take place thereby creating balance and the only force that has the potential to change this balance is a shift in perception either by the buyer or the seller. That’s purely what a stock price really is.

 

 
 

 

 
 

 

 

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~ by Ade on August 12, 2009.