Market Update for August 12
Trading activities on the Nigerian Exchange started for the week on yet another bearish note after the benchmark NGX All-Share index witnessed a mixed session on buying interests in some undervalued companies on the strength of their recent corporate numbers while selloffs hit highly capitalized stocks that weighed negatively on the market to close lower.
Thereby halting three consecutive sessions of bull run on a low traded volume and positive market breadth as market players continued to digest the recent corporate earnings and reposition their portfolios.
Market weakness resurfaced after strength had prevailed to reflect market dynamics of volatility that create the opportunity to buy low and sell high, especially as most of the listed companies are undervalue and the pullbacks are driven by high cap stocks that are facing selloffs as a result of sector rotation and portfolio rebalancing. The pullback after the composite index crossed the 99,000 psychological line to test the 50 EMA indicates resistance level and sell zone until a new momentum and wave to continue its recovery. Just as the market entered another distribution phase at the close of Monday trading.
Profit taking in banking and highly capitalized stocks like BUA Cement, GTCO, Accesscorp 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. The selling sentiment and pullback are a different phase of market that requires change in strategies to navigate and follow the trend.
Smart money took advantage of oversold state in the market to buy into value and defensive stocks, as numbers released so far have been mixed, while earnings of low cap stocks and some highly capitalized companies beat market expectations. This is especially true of service providers like banks, insurance and others in the face of low valuation and pullbacks witnessed in the market recently.
Selloffs and profit booking in the banking and industrial goods sectors of the market pushed the index’s action slightly below the T-Line, revealing 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 the ‘buy zone’ ahead of July consumer price index and banks interim dividend announcement. This pullback may not last on the strength of earnings power of many undervalue and growth stocks.
NGX index’s action trades below the T-line and 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 rebounding to sell above $80 per barrel at the international market.
More companies on Monday notified the NGX of their Annual General Meetings. The latest came from BUA Foods, Redstar Express and Guinness Nigeria, while Airtel Africa continues to update the Exchange of its ongoing share buyback programme. Also, Okomu Oil notified the market of resignation of Non-Executive Director and appointment of another. Also, Nahco 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 just signaled weak momentum in a pullback with selling sentiments as revealed by the candlestick formation and momentum indicators. The ADX is looking down at 30.72, while RSI and Money Flow Index were down to read 41.97 and 19.31 points against the previous session 48.19 and 19.82 points respectively. Market players should watch this current trend and trade with caution in the face of funds leaving the market, 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.
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Oil prices extend gains on Monday for the fifth straight days, to continue its oscillation as it trades at $82.30 per barrel in the midst of increasing geopolitical uncertainties across many economies. Especially as Middle East conflict escalating affect supply. 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, Monday’s trading opened in the upside before pulling back to oscillates for the rest of session on profit taking and buying interest in blue chip companies, a situation that pushed the NGX’s index to an intra-day low of 97,735.21bps from its highs of 99,015.62bps, before closing sharply below its opening level at 97,881.75bps.
Market technicals for the session were positive and strong 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 11% buy position and 89% sell volume. The total transaction volume index stood at 0.91 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index was down to read 19.31pts, from the previous day’s 19.82pts, indicating that funds left the market.
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Index and Market Caps
At the end of Monday’s trading, the key performance Index shed 710.37 basis points, closing at 97,881.75bps after opening at 98,592.12bps, representing a 0.72% decline. Market capitalization fell by N404.09bn, closing at N55.57tr from the previous day’s N55.98tr, which also represented a 0.72% value loss.
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The session downturn was driven by profit taking and selloffs in BUA Cement, Zenith Bank, GTCO, UBA, Skyway Aviation and CWA among others. This impacted negatively on Year-To-Date growth reduced to 30.90%. Market capitalization YTD gain fell to N11.32tr, representing 36.62% above its opening level for the year.
Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Industrial Goods and Banking closed lower by 3.96% and 0.31% respectively, while NGX Energy index led the advancers after gaining 3.30%, followed by Insurance and Consumer goods with 2.05% and 1.00% respectively.
Market breadth was positive as gainers outnumbered losers in the ratio of 29:20, while activities in volume and value were up after investors exchanged 4983m shares worth N11.8bn. Volume was driven by trades in GTCO, Veritas Kapital, Accesscorp, Japaul Gold and UBA.
Julius Berger and Nascon were the best performing stocks, gaining 10% each, closing at N121.00 and N34.65 per share respectively on the back of market forces and sentiment respectively. On the flip side, BUA Cement and Skyway Aviation lost 9.94% and 5.4% respectively, closing at N114.30 and N24.40 per share, purely on profit taking and selloffs.
Market Outlook
We expect mixed sentiment and bargain hunting to continue on 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
