Why Did the EGX Take a Dip?

What is recently happening in the Egyptian capital market? Thndr's Technical Analyst Lead Mohamed El Aasar tells us in this op-ed.
Why Did the EGX Take a Dip?

Disclaimer: We don’t recommend the use of technical analysis as a sole means of investment decisions. We don’t recommend making hurried trading decisions.

The EGX 30 witnessed a sharp decline of 6.4% during the last six sessions. This happened after the index passed the 11,200 pts support level, a price level where a downtrend can be expected to pause due to a concentration of buying interest. If this support level is passed, this would imply an expected further downtrend.

Why did this happen? The EGX 30 decline was driven by the sharp decline of Dice Sports ($DSCW) that amounted to 49% since the 8th of March. The market sell-off came after one of the major shareholders sold some of his shares in the company which caused the sharp decline in the stock price.

We expect that this might have also caused a series of margin calls* and the selling of other stocks so that investors can cover for their losses.

*Margin Lending: A type of loan that allows investors to borrow money to invest, by using their existing shares as collateral.

*Margin Call: Happens when the value of investors’ margin portfolio falls below a certain level. The brokerage company sends a request to the investor to deposit additional money to balance his account. Most of the time, investors elect to sell existing securities to balance their margin account instead of depositing an extra amount.

Where is the market heading?

Source: Refinitiv Eikon, Chart: EGX30 Index@10,471pts, Range: Weekly candlesticks from Jan 2020 – Mar 2021 

The market is expected to head towards the expected yearly low of 9,900 – 9,400 pts during Q2 2021 before it starts to bounce back. The estimates were calculated using the Fibonacci Retracement study, a method of technical analysis used for determining support and resistance in market corrections. It is worth noting that the EGX 30 may witness a slight recovery towards the resistance level* of 11,200 pts before reaching the yearly low of 9,900 – 9,400 pts.

*Resistance Point: Resistance is a price level where an uptrend can be expected to pause due to a concentration of selling interest. If this resistance level is passed, this would imply an expected further uptrend.

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