OSE: Time to increase the equity weights again

Tuesday, July 8th, 2008 I asked whether it was time to tank up or run away, as we were breaching negative signals in Technical Analysis (TA). Now we're seeing interesting things happening again, so it is time for an update.

But first of all, the prerequisite disclaimer: I would never recommend using TA as the only foundation for decisionmaking. But it still is a nice addition to the rest of the tools in the portfolio , and I do believe it can provide information , in particular in terms of being a proxy for market psychology.

I made a reference to expecting it to be the smart move for the younger part of the population (with excess cash) to invest in the equity markets in my former blog post. Lets look at some charts for this.

The past couple of days has been very interesting with a breakout of a negative trend tunnel in RSI 14 and RSI 21, as well as closing over the 45 day moving average yesterday (45dMA: 222.39 vs Close: 223.58). The next solid resistance isn't seen untill the fibonnaci retractment point around 265-270, granted we have some resistance also around 235.

The 200 day moving average is 303.55 and we have 255 day MA at 337.27. A move back to 305 from 223.58 signifies a 36.4 percent increase from today. At the same time there seems to be increasing reasons to believe there is a limited downside. I believe we saw the bottom for this round with the lowest close 188.23 on 21st of November 2008 and an intra low the day before of 180.4. The close of 188.23 is as such 15.8 percent down from today's levels (or inverse, we've increased 18.8 percent since that close).

That said, I do believe we'll see continuing horizontal movement for a while more. But in order to reduce the risk of a bad entry point I prefer spreading my purchases over a longer time horizon, and I do believe

1. The OSE is attractively priced from a longer term horizon
2. Investors should have an overweight on OBX (25 most traded shares)
3. A smaller part of the portfolio should be placed in some high risk shares that have taken excessive hits during the financial crisis
4. Primary Capital Certificates are a nice defensive contribution to the portfolio with a high dividend yield (e.g. MORG with 11.5 percent div yield (20 NOK over 173 NOK close, note personal bias towards this bank))

That said, in many ways I hope that we don't see a too steep growth over the next couple of months, as that will signify a high probability of the upturn being a bear-market rally.. What I would like to see is a reduced volatility with high volumes (we've seen a volume increase over the past few weeks) established in the 215-225 range. The important thing is getting a higher ratio of investors to traders in the market (long-term capital). And there is indeed quite a lot of money sitting on the sidelines waiting to get in.

And with that rant I want to wish people a nice weekend and good investing!

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