Share split

A flattish Q2 for NSE20 while other markets rallied hard - some even made all time highs - retains its weak posture in Q3. Possible global correction won't be kind to the NSE. When is the release of Q2 banking results?

ELLIOTT WAVE ANALYSIS OF THE NSE 20 SHARE INDEX

This is my interpretation of the path of the NSE 20 Share index from the low of Sept. 2002. I've obtained the chart from the FINANCIAL TIMES Website
link

Elliott wave analysis is mine.
Looking at the chart, one can convincingly conclude that it is possible to chart the path of the NSE using Elliott Waves. For those interested in learning the waves you can read ELLIOTT WAVE PRINCIPLE: KEY TO MARKET BEHAVIOUR BY Frost and Prechter. You can get the entire book free and alot more from www.elliottwave.com.

It is instructive to note that Prechter and Frost, in the book, predicted the great bull market from 1979 (i.e the DJIA). To date the American market has far exceeded even their own expectations. Prechter won the U.S Trading Championship in 1984 with a record 444% gain.

Prechter

Prechter is currently researching on social causality via the Socionomics Institute.

Now to our analysis:



This chart shows a 5 wave move from the low of Sept. 2002 (1009 points) to the high of Jan 2007 (6026 points). Note the zigzag in wave IV and the triangle in wave four of wave V.

This five wave move is called an Impulse Wave. I don't have data from before 1998 so I guess this is a fifth wave move of a much larger impulse wave.

A fourth wave usually divides an impulse into a Golden Section. From the low of Sept. 2002 to the high of wave III (at 3176) is a gain of 2167 (i.e. 3176-1009). Wave V has a gain of 3558 points (i.e 6026-2468).

Now, wave I through wave III, (i.e 3176-1009=2167) multiplied by 1.618 ( a Fibonacci ratio) gives 3506 points vide:

(3176-1009) X 1.618 = 3506 points.

Wave V had a gain of 3558 points i.e 6026-2468.
The difference btw the two figures (3558 vs 3506) is 52 points which is one and half percentage points from the exact figure!

WHY I CONSIDER A HUGE BEAR MARKET FOR NSE

1. From the high of 6026, the NSE 20 Share index has fallen in five waves (i.e waves 1, 2, 3, 4 and 5). From the low of March 2009 (at 2576 points), the NSE has moved in 3 waves. Or, at the very least, the move from the part I've labelled A to the part labelled B cannot be considered an impulse wave due to overlap. The Elliott wave pattern that has such characteristics is called a ZIGZAG. A Zigzag is a three wave move that subdivides 5-3-5. So presently we have 5 waves down from the 6026 high, thus forming wave A. Wave B is the three wave move from the low of March 2009 at 2576 to present levels. What remains is another five wave down which is likely to take the 2576 low!!!

2. Also note the DIVERGENCE between the RSI and the highs that the NSE is making presently.

3. From the low of Sept. 2002 to the high of Jan 2007 NSE had a gain of 5017 (i.e 6026-1009) points over a 5 year period. From the low of March 2009 to presently, the NSE has only gained about 2497 points (i.e 5073-2576) over a 5 year period. This is about half the gain of 2002-2007. So we now have a market which shows weakness in breadth apart from not making a new high beyond 6026 points.

4. Economically Kenya has one of the highest taxation levels with little efficiency. Electricity prices are high etc etc. Our debt obligation, though not necessarily un-manageable at this point, has accelerated over the past few years. Alot of grand projects are being announced which appear to be good news. In Elliott analysis complacency usually reigns at the very top of a move.

CONCLUSION

NSE 20 Share index is over-extended and it is time for a big correction in the market.

Regards to all.

I have stated here previously that the stock market leads the economy. I did say at one point that if/when the NSE 20 Share Index will have fallen sufficiently down then increasingly negative social actions would follow e.g

1. A fall in tax revenues

2. Increasingly violent clashes btw the public and the state and public and public.

3. More female leadership

4. Legislation to allow previously considered hard drugs e.g marijuana (a marijuana bill to regulate use of the drug is currently before parliament).

5. Wars/clashes both within the country(e.g. tribal) and with external forces.

6. Expect more retrenchments. In fact if you are employed then start to prepare for a situation in which you may lose or get reduced monthly income.

7. More debt defaults. If you have loans then repay them before it becomes increasingly difficult to make the monthly deductions. If you have no loans don't take any. The government itself will default on its loans.

8. Expect bank crises.

9. Keep hard currency - goes hand in hand with 8 above. Expect the government to start raiding your savings

etc

Flagging Revenue Performance

NSE 20 closed 1711.83
NASI closed at 137.26

The expressway to 1400 opened to the public

Safaricom