Market Update for December 30
It was mixed and volatile session yet again at the midweek as the Nigerian Stock Exchange (NSE) maintained positive sentiments with the composite All-Share index closing higher on low traded volume even as more funds entered the equity space in search of higher yields and returns. This was revealed by the institutional investors’ index trading above all the moving averages, just as MFI is reading 75.71 points on the daily chart.
The key performance index was driven by buying interests in highly capitalized and medium cap stocks as the Santa Claus ride continued helping the benchmark index and more equities to new 52-week highs, following which the bourse ranked world best performing stock market. This is happening amidst the sustained rise in oil prices, and despite the increase in the Coronavirus infections rate, which many fear may lead to another round of economic look down, as vaccine distribution in the developed economies continue, while investors engage in window dressing.
Already, with one last day of trading, the Nigerian equity market is set to close at its seven-year high, just as the possibility of the ASI breaking out the 40,000 and 41,000 resistance levels in January is high, notwithstanding the fear of January effect. This is because factors that support the market rally are increasing, particularly the twin major factors of low interest rates in fixed income instruments and rising oil price now driving the bull market.
However, we must warn at this point, that investors should not underestimate the possibility of pullbacks any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend.
The summary is: considering the prevailing new trading pattern and the fact that the index is rallying outside the upper limit of the Bollinger band, signaling sell, while other technical indicators are showing overbought and support a possible market correction.
Midweek’s trading started in the green and was sustained for the rest of the session, despite oscillating in the late afternoon on profit booking from the banking and consumer goods stocks that rallied recently. Position taking in BUA Cement and some others pushed the NSE index to an intraday high of 39,601.97 basis points, from a low of 39.107.50bps, before closing higher at 39,512.31bps.
Market technicals were positive and mixed with volume traded lower than the previous day’s in the midst of breadth that favoured the bulls on a positive sentiment as revealed by Investdata’s Sentiments Report showing 82% ‘buy’ volume and sell position of 18%. Total transaction volume index stood at 0.88 points, just as impetus behind the day’s performance was strong, with Money flow index looking up at 75.71pts, from the previous day’s 70.58pts, indicating that funds entered the market ahead of the 2021 corporate actions.
Index and Market Caps
At the close of Wednesday’s trading, the NSEASI gained 402.14bps, after opening at 39,110.17bps representing a 1.03% growth, just as market capitalization rose by N213.4bn, closing at N20.66tr, from an opening value of N20.45tr, representing a 1.04% value gain.
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The session’s upturn resulted from buying interests in BUA Cement, UBA, FBNH, GSK, FCMB, International Breweries, Eterna, AXA Mansard Insurance, NEM, RedStar Express, as well as C & I Leasing, among others. This impacted positively on Year-To-Date gains, which increased to 47.20%, just as YTD gain in market capitalization soared to N7.7tr, representing a 59.44% growth.
Mixed Sector Indices
The performance indexes across sectors were largely bullish, except for the NSE Banking and Consumer Goods that closed 0.71% and 0.25% lower, while NSE Industrial Goods led the advancers, after gaining 3.74%, followed by the Insurance and Oil/Gas that closed 2.99% and 1.66% higher respectively.
Market breadth turned positive, as advancers outnumbered decliners in the ratio of 24:19; even as transactions in volume and value terms were mixed with traded volumedown by 48.39%, after investors exchanged 372.93m shares, as against previous day’s 722.57m units. Transaction value, however, rose 162.57% to N11.5bn, from Tuesday’s N4.38bn, while volume was driven by UBA, Dangote Cement, Zenith Bank, Access Bank and Transcorp.
BUA Cement and Eterna were the best performing stocks, gaining 10% each to close at N70.40 and N5.61 per share, on market sentiment and forces. On the flip side, FTN Cocoa and Deap Capital lost 9.88% and 7.41% respectively, at N0.73 and N0.25 per share, on profit taking and market forces.
We expect the trend to continue as trading for 2020 closes higher on buying interests in highly capitalized stocks that control 70% of the market cap pushed the NSE to rank the best performing market in the world, as oil price rally and more stocks that drive the Santa Claus rally are waking up in terms of price appreciation ahead of year end window dressing. There was also the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current happens globally. Investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations.
Also important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.
The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.
Again, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the rest of the year.
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