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Why You Should Keep an Eye on NSE All Share Index Right Now

Investors seem to have ignored the political risk, shun the upcoming election and started hunting for cheap stocks ahead of the financial year-end result.

Last week, the NSE index closed on a positive note with the year to date return now on the green side. Even as I share this post, the market ended the trading session at 32,462 basis point, up by 2.14%, Year to date, the index is up by 3.28%

While this is in line with the stock market cycle, where gains are usually recorded in the first half of the year, it makes more sense to analyse the general market sentiments; a technical analysis that helps us ascertain the short term direction of the market.

Let us look at the NSE index direction on a weekly chart:

The market turned bearish in February 2018 as investors flee to safety on rising interest rate in the US, geopolitical tension between the US and Iran, brewing political uncertainties (battle between the two key parties )and trade wars between economic powers. While the first, second and fourth risk isn’t talked about like before, the third risk which seems to be the fundamental driver of the market direction.

Let us look at the NSEAll Share Index on a daily chart and how it may be set for a further rally if key 32,000 resistance is broken.

The moving average (colour blue) represents the 50-day SMA.  This MA is one of the indicators widely followed by retail and corporate investors.

You will notice the rejections at various intervals; from October 2018 (A1), November 2018 (B1) to December 2018 (C1). Whenever the all share index turns bullish, it tends to bounce back to a bearish mode at the 50-day moving average; this had resulted in a “lower-high, lower-low trend”, the technical definition of a bearish market if you are familiar with forex trading.

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As the index found its next key resistance at D1 which is a lower-high of C1, we would have expected a lower-low to complete another bearish move but this time, it formed a higher-lower, the beginning of a bullish reversal. The big question is, will the market complete the bullish sign with a “higher high”?.

Here is our analysis and what you should expect as we close the week to elect the next president:

Our first assumption: If the market closes above 32,000 basis point amidst a peaceful general election, this might pave way for foreign portfolio investment, hence drive the NSE index to 33,000 basis point (A1). With year-end result expected in 1 – 3 weeks, the market may continue its bullish run as dividend investors hunt for stocks with attractive yields before closing dates.

Our second assumption: if the market fails to close above 32,000 basis amidst an inconclusive election or rising political uncertainties,  investors might react to the news, hence prefer fixed income market instruments. The NSE index, at that point, may lose its strength to 29,000 basis point (C2).

Understanding general market sentiments lets you spot opportunities and risk so you can align your portfolio for more reward.

The ideas and analysis shared here the personal opinion of the author, I don’t own NSE index ETF, you are advised to do your homework properly.

What do you think?

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