advertisement
Columnists

Ideas to help you navigate the current sideways market

Nairobi Securities Exchange
A broker at Nairobi Securities Exchange (NSE) trading floor. FILE PHOTO | NMG 

The year 1873 Levi Strauss and Jacob Davis patent the first blue jeans with copper rivets. It was the same year Sultan Bargash under British pressure closed the infamous slave market of Zanzibar in modern day Tanzania.

It’s also the year that “Celluloid” was registered as a trademark by its inventor, John Wesley Hyatt.

In 2020, 1873 stands for something totally unrelated; it’s the new low for the Nairobi Securities Exchange (NSE) in nearly 20 years.

It’s not all bad news, though. The market has advanced only modestly since setting this low in February. In other words, it has remained range-bound or traded sideways - meaning that while swings have been sizable in both directions, it has mostly traded within a range.

So, what does this price action mean? Does it signal a bottom is near, if not yet established? And will adding risk on a pullback be a safe play? And why would this market necessarily be “resolved to the upside”?

advertisement

Honestly, I wish I knew the “seven” rules to guide you through this vexing stock market, but I am just as perplexed as anyone else.

Though bulls believe the market will finish the year with a strong rally and bears see the market bottoming out, what will happen next is anyone’s guess. No one knows the way from here.

Everyone struggles with poor visibility that comes with a market in a consolidation pattern. But again; what to do when in vesting patterns show no clear direction. Here are a few ideas to consider:

One, be patient. Many investors are not patient. Because they want instant profits, they force trades, or trade when odds are not on their side.

scenarios

Invest like the farmer. See how the farmer waits for the land to produce its rich crop after planting seed. See how patient the farmer is for the short and long rains. Be willing to wait for the right opportunities.

Two, losing money is a learning experience. It’s rare that you learn from winning trades, but you will learn a lot from your losses. With the year-to-date market losses over 20 percent, take time to learn, unlearn and relearn.

Lastly, update your trading plan. A plan can be a detailed trading diary or a list of rules. It should at last give you an idea for when to get in (entry price), when to get out (exit price) and when to cut losses (escape price).

To add to our little headache, today’s current problems (Covid-19 is an obvious one) mean more uncertainty and more volatility.

Kenya’s debt to GDP stands high at 62 percent (2019), local currency is down six percent year-to-date compared to the US dollar (meaning the country's cost of debt is likely to be high), GDP growth is estimated at a weak one percent according to the IMF.

Purchasing managers Index (PMI) remains below 50 and large swathes of the economy remain closed (meaning more job losses).

All these further complicate a sideways market.

Mwanyasi is MD, Canaan Capital Ltd

advertisement