Amidst Strong Money Flow Index, It’s Caution, Profit Taking Ahead Of Earnings

Market Update for January 18

Nigeria’s equity market is turnout into a daily spectacle, with Thursday’s session closing marginally negative after another very volatile, but interesting day. Sentiment was mixed as traders and investors took profit from the recent rally, pulling the index below the day’s opening level, a situation that lingered throughout the day. Worst affected were blue chip stocks as they suffered losses.
The composite index was down most of the day, but reversed in the afternoon session to take back almost all of the losses after hitting intra-day high of 45,162.64 from low of 44,188.71 after testing support to finally end the day at 44,848.74 on a huge volume traded. Market breadth was negative to reflect profit taking spree, just as technicals for the day were also mixed.
The market remains beat on the nation’s positive economic data, resulting from the sustained foreign exchange market intervention of the Central Bank of Nigeria (CBN) which is impacting positively on the Naira’s exchange rate due to robust liquidity in its Investors and Exporters window.
This is in addition to rising oil price that has equally influenced Nigeria’s external reserves positively to almost $44.48bn to keep the economy in track of recovery and growth. These have continued to attract inflow into the market and the economy at large, following institutional money flow index remains positive with strong energy at close of Thursday’s session.
Investors should however be wary of where they are putting money because the rising momentum in the market is pushing both the bad and good stocks. As the market is currently, there are stocks with no business rallying, given the fact that have either not released their results, or over valued judging by their Q3 performance score-cards. Even one that is yet to release its 2016 results is also closing north, hence the need for taking calculating risks whenever the sporadic but imminent profit taking exercise sets in. Caveat emptor is now the word, hence the need for knowledge of the market.
Despite Thursday’s marginal pullback, in the last 18 trading days of the year, the country’s stock market in (local currency) has already averaged 3.51% year to date based on the 76 indices highlighted in the table below. Sixty-eight of the 76 countries are in the green for the year while just eight are down.
As shown, Nigeria has the year’s best start off with a gain of 17.26% globally year-to-date, followed by Argentina with 11.75% and Russia 10.83%. Italy has been the best G7 country so far, followed by U.S and then Japan. Canada and UK are the weakest of the G7 with gains of less than 1%. On the flip side, Jamaica suffered the biggest slide of just 2%.
Buying pressure for day was 68% and selling position, 52% with volume index at 2.11 of the day’s total transaction. The All-Share index shed 36.50 points to close at 44,848.74 after opening at 44,885.24, representing a marginal decline of 0.08% on huge traded volume that was higher than previous levels. Similarly, market capitalisation for the day was down by N13.08bn, closing at N16.07tr, from an opening value of N16.08tr, representing a 0.08% decline in value.
Profit taking in the low, medium and high cap stocks at the end of the day impacted negatively on the NSE’s YTD returns, reducing it to 17.26%, just as market capitalisation gained N2.46tr, representing a s18.02% YTD growth from its opening value.
All Share Index and all sectorial indices were in red, except for the NSE Banking and NSE Insurance that closed green, while the NSE AseM remains flat. Market breadth was weak and negative with the decliners outpacing advancers in the ratio of 31:28 to halt the three-day bull run.
Market activities in volume and value terms for the day were mixed as volume was up 39.95% to 1.34bn shares from previous day’s 960.75m units, while value dropped by 14.31% to N10.73bn from previous day N12.52bn. Transaction volume for the day was significantly boosted by the financial services and conglomerate sectors, with heavy trading in shares of Transnational Corporation of Nigeria, Wema Bank, FCMB and Diamond Bank that topped the activity chart as most traded by volume.
CCNN and FCMB topped the advancers table for the day with 10.16% and 10.06% respectively to close at N17.78 and N3.61 each. The gains were propelled by positive market sentiments, while Fidson and National Salt led the decliners table after losing 9.20% and 7.24% to close at N4.54 and N19.50 respectively, purely on profit booking.

We expect profit taking and volatility to continue even as repositioning for quarterly and full year score-cards to hit the market any moment from now as more positive economic data roll in ahead of January’s Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting that should hold next week. The energy behind money flow index still strong as at yesterday without divergence, especially with price and volume looking up.
However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season that dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. Market is in phases know the cycles in order to manage your trading and investing risk. For stocks that should be on your shopping list to buy in this seasonality changes as the year winds down, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467