Market Update for August 6
The weakness and bearish sentiments on the Nigerian Exchange continued on Tuesday as the composite NGX All-Share index closed lower, trading below the 97,000 basis points psychological line and extending the markdown phase in the midst of a low traded volume and positive market breadth that reflects a mixed session. These are happening in the midst of the global stock markets rebounding after overreactions to the fear of a recession and others in the previous two sessions.
The continued selloffs in highly capitalized stocks like MTNN, Dangote Cement, BUA Cement and other blue chip companies have weighed on the NGX, thereby creating opportunities for market players to pick value stocks at discounted prices. This is especially now that corporate numbers reveal the position of many companies on the exchange, despite the ongoing economic headwinds. It is clear that many companies are undervalued with significant long-term growth potential to drive prices in the short to long run.
These changing market fundamentals are despite the ongoing nationwide protest against bad governance. Pullbacks and corrections are a different phase of any stock markets across the world that requires change in strategies to navigate these rough waters and roads. Smart money moves any moment from now will further give insights, but stay with value and defensive stocks, as numbers released so far have been mixed, while earnings of low cap stocks beat market expectations. This is especially true of service providers like banks, insurance and others in the face of low valuation and pullbacks in the market.
Despite position taking in some major sectors of the market the downtrend has kept the index’s action below the T-Line, revealing the weak momentum and selling sentiment. The market continues to trade within the value area, creating entry opportunities for discerning investors and smart traders, even as transaction volume patterns and support levels signal entry into the ‘buy zone’ at the peak of the quarterly earnings season and dividend announcement. This downtrend could reverse on the strength of these corporate numbers despite the mixed performance, as many value and growth stocks are undervalued.
The NGX index’s action remains below the T-line, while the two moving averages of 50-EMA and 50-SMA indicate weakness in the midst of changing market fundamentals and technicals. We note that the economic reforms of the government, measured by the outpouring of fiscal and monetary policies are yet to put the nation’s economy on the path of recovery, due to the continued mismatch of these and previous ones. There are also issues with the implementation style amid the oscillating oil production output even as the Naira continues to depreciate at a time that oil is selling below $80 per barrel at the international market.
During trading on Tuesday, more companies notified the NGX of their Annual General Meetings the latest from NNFM, University Press and C & I Leasing, while Airtel Africa continues to update the Exchange of its ongoing share buyback programme. Also, Unity Bank notified the market of approval by the Central Bank of Nigeria (CBN) of its planned merger with Providus Bank. Also, SterlingNG informed the exchange of insider dealings in its shares. In the midst of all these, it is safe for investors to target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.
Technically, the NGX is weak and on the downtrend with selling sentiment and weak momentum as revealed by the candlestick formation and momentum indicators. The ADX is looking up at 34.45, while RSI and Money Flow Index were down to read 25.67 and 24.32 points against the previous session 30.05 and 35.62 points respectively. Market players should watch this current trend and trade with caution in the face of funds leaving the market slowly, despite position taking in some sectors. Also, trading volume pattern continued to oscillates, suggesting buying interest and selloffs in some sectors in the midst of players digesting half year numbers.
To navigate the rest of this quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.
Oil prices rebounded on Tuesday, to continue its oscillation as it trades at $76.48 per barrel in the midst of financial markets retracing up from recent pulled back and supply cuts due to increasing geopolitical tension across many economies. Even as US inventory rises. This trend may likely continue for the rest of 2024, while the up and down movement continues to drive volatility, as Middle East conflict lingers, even as the raging war between Ukraine and Russia continues to influence global oil supply and demand.
Meanwhile, Tuesday’s trading started in the green before pulling back to oscillate throughout the session on profit taking and selloffs in BUA Cement and others, while there were buying interests in financial services and other sectors. This situation pushed the NGX’s index to an intra-day low of 96,843.07bps from its highs of 97,742.13bps, before closing below its opening level at 96,928.52bps.
Market technicals for the session were weak and mixed with higher volume when compared to the previous session in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 10% buy position and 90% sell volume. The total transaction volume index stood at 0.85 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index was down to read 24.32pts, from the previous day’s 35.62pts, indicating that funds left the market.
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Index and Market Caps
The NGX All-Share Index, at the close of Tuesday’s trading lost 653.89 basis points, closing at 96,928.52bps after opening at 97,582.41bps, representing a 0.67% decline. Market capitalization fell by N3721bn, closing at N55.03tr from the previous day’s N55.41tr, which also represented a 0.67% depreciation in value.
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The downturn was driven by profit taking and selloffs in BUA Cement, GTCO, Fidelity Bank, Eterna, Fidson, Transcorp, SterlingNG and Champion among others. This impacted negatively on Year-To-Date growth cutting it to 29.63%. Market capitalization YTD gain fell to N10.43tr, representing 34.78% above its opening level for the year.
Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Industrial goods and Energy closed lower by 3.69% and 0.17% respectively, while NGX Consumer goods index led the advancers after gaining 0.52%, followed by Insurance and Banking with 0.29% and 0.24% respectively.
Market breadth was positive as gainers outnumbered losers in the ratio of 30:25, while activities in volume and value were up after investors exchanged 449.21m shares worth N6.74bn. Volume was driven by trades in UBA, Oando, Veritas Kapital, SterlingNG and Accesscorp.
Nascon and Academy Press were the best performing stocks, gaining 10% each, closing at N32.45 and N2.20 per share respectively on the back of market forces and mixed earnings respectively. On the flip side, BUA Cement and Thomas Wattyl lost 9.99% and 8.52% respectively, closing at N128.90 and N1.61 per share, purely on selloffs.
Market Outlook
We expect mixed sentiments on increased volatility, profit taking and sector rotation amidst oversold region. Portfolios repositioning is however continuing, as investors take advantage of pullbacks to buy into value.
This is amid the volatility and pullbacks that add more strength to upside potential. Consequently, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.
Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
08028164085
