Since the NSE turned bearish in July 2008 the market has had several attempts at recovery, but most of the recovery rallies have failed. The most sustained rally began in April of 2009, but ran into strong head winds in early June 2009 as the NSE all-share index failed at 30,925, falling short of its 200-day cumulative simple moving average of 31,719.  Since that major failure, the all-share index has attempted, but failed at four short-term successive rallies. As highlighted in the graph below, it is evident that the NSE all-share index has spent the majority of the most recent 20 months below its 50-day and 200- day CSMA.
Although the current up trend is approaching its sixth day, the sustainability of this uptrend is questionable because of several issues confronting the market, one of which is the current banking scandal which nobody truly knows how it will impact the ownership structure of the affected banks. However, it is encouraging that the all share index appears to have built a solid base (from January 2009 through the August 2009). This long base period has been a period of accumulation for several smart investors and composite operators. Due to the long base period, the difference between the current levels of the NSE all share index and the 200 day CSMA has narrowed significantly. Therefore, due to this interesting phenomenon, it appears that we are at the bottom or not very far from the bottom. The downside risk from the current NSE level is very minimal.
The possible sustainability of this rally is not the relevant issue at this time.  What is important is that investors should position themselves to make money when the market finally turns around. I believe that the NSE is in a secular bear market because the trend is punctuated by alternating Bull and Bear trends. Regardless of what the current trend is, the trend of the NSE for the last 20 months has been pure wealth destruction as the real purchasing power of stocks declined more than they advanced. Nevertheless, secular bear markets can represent great buying opportunities because investors can acquire stocks for much less than they would be worth in better times. For example, on September 17, 2008 at the peak of the United Sates Wall Street melt down, Mr. Warren Buffett, the Oracle of Omaha invested $5 billion in Goldman Sachs. At that time, the investment was a equivalent to the purchase of 43.5 million shares of Goldman Sachs at $115/share.  It seemed like a risky investment then. By November 20, 2008 Goldman Sachs stock price was trading at $51.47 and it seemed that the Oracle of Omaha had made a catastrophic error as the value of his investment was down $2.2 billion or 44.8 per cent. However, one year later on September 23, 2009, Goldman Sachs stock price closed at $183.06 representing an increase of $68.06 or 59.2 per cent from its original purchase price and translating into unrealized gain of $3 billion or 59.6 per cent. Now the sagacious old man looks like a genius.
The genesis of my Warren Buffet story is that regardless of whether the current trend is sustainable or not, the real issue is that most of the listed stocks on the NSE are so low and trading below their fair value that the future reward exceeds any downside risks. The people who buy “intelligently” today will look like the geniuses in the future.
Finally, as an investor I will be looking at some stocks within the Banking sector that have been beaten up due to the recent CBN investigations, because most of the bad news are already out and have been priced into the stock prices. Usually, in the trading environment, the lingo is to sell on the rumor and buy on the news.  With this in mind, it appears that the selling in some of the troubled banks has started to abate. Although, this is not a recommendation, I encourage investors to look at Union Bank. Technically, it appears that the trading volume which spiked towards the tail end of the sell-off decreased on Friday. Additionally, the UBN stock price closed at an intra-day high for the first time in 17 days.