In our previous stock market outlook, we touched on an indicator that tracks the ratio of stocks above their 100-day moving averages. We mentioned that the ratio had touched 2.96 during that week. We also made a discovery that within a few weeks of rising above 2.9, it historically begins to decline till it reaches 1.0.
We also discussed how much evidence there was to suggest that Nigerian stocks were in a strong and bullish market. We expected a market correction and suggested that the market could retrace to ₦32,500 and maybe ₦29,600. The market’s correction has been quite narrow, retracing only 15% of the move up from ₦20,651 in April.
Stock Market Trend
Since the Nigerian stock market bottom on the 6th of April, the all-share index has been rising consistently. As of the close of business on Friday, the index sits above its 50, 100, and 200-day moving averages. This can be comfortably interpreted as an up-trending market
The ratio of stocks above their 100-day moving averages currently sits at 2.72. While this is not the 2.9 extreme level, it is still one of the highest levels recorded for the all-share index to date.
In our previous post, we explained that there is a history that indicates a likelihood of steep declines when this ratio hits 2.9. We will continue to monitor this ratio to see whether the declines begin to accelerate or not.
Our top 5 stocks to watch today, therefore, would be:
Please click on this link to download a copy of the stock market outlook.
Outlook for the week of December 7, 2020
As stated earlier, the correction of the all-share index has been a narrow one, considering the size of the move up from the April low. Under normal circumstances, we should expect a 25% retracement at a minimum. These, however, are not normal circumstances. There are three scenarios which could play out in the coming weeks which could see the index:
Grind out a narrow range between ₦35,245 and ₦33,582 – Scenario A
Make a 25% correction and decline to ₦32,000 – Scenario B
Resume its rise and break above the ₦36,000 price zone – Scenario C
Do we know which of the three will happen? Nope. We can, though, try to make an educated guess. The market is not expecting any major news in the coming week that could be the inspiration for a renewed bull market. This suggests that it is less likely for scenario C to play out but hey, you never know. The market could latch on to the recent CBN policy changes to trigger a positive market sentiment.
Taiwo Megbope is the Co-founder and Chief Growth Officer at Investor Hangout.
He is tasked with ensuring and managing the growth of the Investor Hangout project. His responsibilities include creating and implementing the project's vision as well as executing growth-generating strategies.
Taiwo is an avid researcher and autodidact. In his spare time, he enjoys spending time with his family and friends.