Although NGSE Trading Pattern Supports Uptrend, Correction Still Possible

Market Update for December 21

Monday’s trading activities on the Nigerian Stock Exchange (NSE) started on a volatile and positive sentiment for manufacturing stocks, as the benchmark All-Share index extended its bull-run for the sixth successive session and close higher on above average volume, amidst oscillating oil prices and rising case of coronavirus infections globally.

Oil price stayed above the $50 per barrel pre-COVID price, despite oscillating on the second wave of the deadly virus, to remain above the government 2020 and 2021 budget benchmark price of $40.

Monday’s rally was driven by high demand for Dangote Cement, Lafarge Africa, Flour Mills and PZ Cussons. The interest in shares of Dangote Cement may not be unconnected with the release of its share buy-back programme announced by the board before the market’s opening bell, as investors positioned, with the planned commencement of the first tranche involving the buy-back of 85.2m shares or 0.5% of the outstanding shares on December 30, 2020 and completion date slate for December 31, 2020.

The ongoing Santa Claus rally is a signal that the year is coming to an end, and there are some important round numbers in the market, as the rising new cases of COVID=19 remain a threat to economic recovery efforts.

The NSEASI has already broken out a strong resistance level of 37,000 marks, translating to 39.5% returns year-to-date, thereby outperforming inflation rate at 14.89%. 

Investors should target value and growth stocks and ride with the trend, ensuring like every smart investor that our Investdata 10 golden stocks for 2021 are in their portfolios, since these are stocks expected to drive the NSE’s ongoing V-shaped market recovery. The benchmark index just broke out major resistance levels to trade above all the moving averages on a daily and weekly chart.

Investors and traders also should not underestimate correction at any time, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend. The summary is: anything is still possible, considering the flat position of market breadth and low priced stocks topping the day trades in volume.

Meanwhile, Monday’s trading opened in the upside on high buying pressure that was sustained throughout the session, as investors repositioned for year-end and corporate actions in 2021, factors that pushed the benchmark index to an intraday high of 37,494.76 basis points from its low of 36,798.74bps. Thereafter, the index closed higher than it opened at 37,443.40bps on a flat breadth.

Market technicals were positive, but mixed, with volume traded higher than the previous day in the midst of flat breadth and high buying pressure as revealed by Investdata’s Sentiments Report showing 93% ‘buy’ volume and sell position of 7%. Total transaction volume index stood at 0.86 points, just as momentum behindthe day’s performance was relatively weak, with Money flow index looking up at 48.50pts, from the previous day’s 47.13pts, an indication that funds entered the market as funds are looking for higher returns and yields.

Index and Market Caps

The benchmark NSEASI, at the end of Monday’s trading, gained 638.65 basis points, representing a 1.74% growth, from its 36,804.75bps, just as market capitalization jumped N333.8bn up to N19.57tr, from N19.24tr, also representing 1.74% value gain.

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Monday’s uptrend followed gain by Dangote Cement, Wapco, Flourmills, PZ, Guinness, Stanbic IBTC, Vitafaom  and others. These impacted positively on Year-To-Date gains which increased to 39.50%, just as YTD gain in market capitalization grew to N6.87 trillion, representing a 47.43% growth above the opening value.

Bullish Sector Indices

All the sectorial indexes were up, except for NSE Banking that closed lower by 1.06%, while NSE Industrial Goods led the advancers after gaining 5.46%, followed by Insurance, Oil/Gas and Consumer goods that were higher by 5.16%, 0.76% and 0.34% respectively.

Market breadth was par, as advancers were equal to decliners in the ratio of 23:23; transactions in volume and value terms were mixed with volume declining by 0.17% to 426.33m shares, from previous day’s 427.06m units, while value rose by 31.72% to N4.36bn, when compared to previous day’s N3.31bn. Volume was driven by Mansard Insurance, Japaul Gold, Transcorp, Skyways Aviation and Aiico.

BOC Gases and Dangote Cement were the best performing stocks during the session, gaining 10% and 9.98% respectively, to close at N7.92and N230.40 per share, on market trend and news of share buyback. On the flip side, Eterna and Ardova lost 9.89% and 5.2% respectively, at N4.10 and N13.55 per share, on major shareholder divesting and profit taking

Market Outlook

We expect this trend to continue on buying interest in Dangote Cement ahead of December 31, 2020 and other stocks that drive santa claus rally, also on the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current dividend yields provided by the pullbacks, while bargain hunters take advantage of the situation to reposition. 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.

A breakout of 36,000 points will confirm a new uptrend as the market awaits the circular flow of funds to settle in higher yields instruments with a shorter timeframe, while waiting to see the impact of the adjustment in CBN policies. A breakout of this resistance level will create buy opportunities for discerning traders and investors.

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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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467