Ahead of a Possible Slip into Bearish Mode - 240610

“The term Bear Market refers to a declining or poor state of the market or trading group, usually a
stock market, in which consumer confidence and financial expectations are on a decline and the
market continues to lose value, usually at an average loss of 15% to 20% in one or more index
over a 12 month period.”

When on June 02, 2010; we published an analysis of an emerging trend in the market –
“Market turns south after three days of appreciations: Observations”
http://www.proshareng.com/articles/2086; little did we know that we had identified a worrying
development that now requires a more than passing commentary.

It appears that the index is threatening to slip into a bearish mode if the current trend
does not reverse next week. It might be the right time to alert members of the proshare
investment community to stay on the sidelines (till indicators point otherwise).

The index for the first time since the beginning of 2010 might fall below its 200
day moving average by next week. The ASI started trading above 200 day moving
average on March 11th, 2010 after it appreciated by +1.08% to close at 23,666.33.

However as at Friday, June 24, 2010; the month to date performance has been dragged
to 3.93% depreciation while the year to date performance dipped to 20.71%. Also, the
gap between the ASI when compared with the figures recorded as at the end of January
2nd, 2009 trading session 2009 has further been widened by -19.78%.

The +2.77% All-Share Index appreciations recorded in the five trading days prior to the
resumption of the ongoing bearish trend has been overwhelmed with -2.93%
depreciations recorded in the last six trading days of bearish trend to date. By this
trend, it then shows that market has lost over and above the gains made in the
previous rally.

This trend of negative outlook seems to have faulted the robust forecast for the second
quarter of the year for the period ending June 30th, 2010. With only three days into the
end of the month, unless there is a kind of unprecedented positive rally in the remaining
three trading days, the month would consequently close with negative trend, a reverse
of the forecast.

Moving Averages as an Indicator of Market Condition

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At the close of trading session, the All-Share Index which closed at 25,154.26 traded
only above its 200 days moving average 23,541.50 but below its 20 days, 50 days and
100 days moving averages of 25,693.16, 26,516.58 and 25,361.84 respectively.
Technically, the trend is negative and definitely bearish.

Notwithstanding the persistent decline, the trend, while retaining a bullish outlook in
aggregate terms, is headed for a bearish mode as the gap closes faster by each passing
day.

The All-Share Index in the week under review dipped by -2.74% to close at 25,154.26
as against appreciation by +1.73% recorded last week to close at 25,861.93.
Transactions in the week were bearish throughout the five trading days, hence the
decline recorded.

If we are to rely on the trend alluded to in the report - http://www.proshareng.com/articles/2086

- we can expect an appreciation in the last two days of the month and another in the
first two days of the new trading month – July; before reverting back to the decline
mode.

What is happening and why have investors refused to buy stocks?

While this calls for a crystal ball moment, we can safely point to one key factor – retail
investors are out of the game. Why that is so can be a matter of conjecture from the
following market conditions:
1. The retail market is all but disappeared as a consequence of the illiquid status of
investors – who are still smarting from the huge wipe-out suffered from the market
crash;
2. The access to non-savings leverage (margin loans) hitherto available from banks and
brokerage firms is no longer available to all and sundry for obviously risk-based reasons;
3. The estimated market is now about eighty per cent dominated by institutional
investors with foreign investor influence;
4. Local market participation is dominated by pension fund managers who have the
liquidity to continue to play in the market on a short term basis, leading to necessary
book balancing adjustments.

Without a doubt, their must be a serious element of book balancing/portfolio re-

adjustment at play to explain the trend.

Feedback from Market Survey

It seems investors simply do not buy the argument of regulators that the coming into
play of the AMCON would ensure that their funds in the stock market are not lost – or
their losses will be significantly mitigated. They point to the statements from the CBN
Governor that shareholders in the affected banks have lost their shares just as they deal
with debt overhang arising from the leverages obtained through margin loans from
brokers – a fate yet to be clarified.

Generally, the rally expected from the movement from an unattractive low interest
regime in the money market has all but fizzled out as the value of their investment failed
to appreciate thus far.

For those who have any desire to still engage the market, they are simply not buying the
argument that this is the best time to go in and mop up stocks which are low priced.
Why? Some of these stocks are considered to be trading above their fair values
at this time - and these listed companies have large floats that will come back
the hunt them.

The lack of commitment from investors is apparent in the way stocks are bought and
sold on short term basis - as investors are no longer keen about holding stocks for long
term, at least for now.
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The long drawn out delay in executing the AMCON (CBN, SEC, NSE and MoF) does not
suggest to some that the regulators/managers of the economy get it. This view may be a
bit far stretched and perhaps presumptuous but its impact is deafening.

The AMCON, we re-iterate, represents one of the solutions needed to address the
economic condition in which the market is operating and not ‘the solution’. A greater
component of the solution required will have to come from the harmonization of the
fiscal and monetary policies our economy is in dire need of.

Lest we forget, almost a year ago, we took 30% of the total market capitalization into
quarantine (more or less) with the decision on the R8 banks and the uncertainty over
their fate does little to inspire a market upbeat.

Prepared by the Proshare Research Unit based on exchanges between Olufemi Awoyemi, CEO of Proshare and Dr. Chukwumah
Biosah, President CEBAL Audit Group, USA and InvestIQ, Technical Analysts to Proshare. All opinions on this page/site
constitute our best estimate judgement as of this date and are subject to change without notice. Investors should see the
content of this page as one of the factors to consider in making their investment decision. Proshare Limited, its employees and
analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed to
biosah@aol.com or ceo@proshareng.com