Bargain Hunting May Linger, As Pullbacks Attract Fresh Positioning For Earnings Inflow

Market Update for July 10

Midweek’s trading on the Nigerian Exchange was a mix of profit taking and buying interest with the benchmark NGX All-Share index closing flat after resisting further decline on a very high traded volume and buying sentiments. The index formed a hammer candlestick that signals the fact that reversal is underway, at a time the market had witnessed five consecutive sessions of bear run. The positive market internals revealed activities of bargain hunters and continued portfolio repositioning ahead of the June Consumer Price Index and half-year corporate earnings reports expected to start hitting the market any moment from now.

Market correction and pullbacks have created entry opportunities for market players, with the NGX forming a bottom pattern that also signals an uptrend in the making which however needs confirmation as the market enters yet another demand zone in expectation of corporate and economic numbers. When that happens, it could give way for a new uptrend, depending on the state of the corporate earnings and macroeconomic indices as all eyes are on these numbers to drive flow of funds in the financial market. Even with the most of the rates at TB auction yesterday remain flat except for 364 days that inched up to 21.24% while 182 day and 91 days read 17.44% and 16.30% respectively

Meanwhile, all eyes are on such early filers like Infinity Trust Mortgage Bank, United Capital, and Africa Prudential, among others. As outlook for the rest of the year remains mixed on the back of the ongoing primary market activities for companies, especially those engaged in banking services to recapitalize, while the Central Bank of Nigeria (CBN) monetary policy moves to checkmate the spiraling inflation militating against the economy amid the high interest and exchange rates challenges.

The NGX index’s action is trading below the 100,000 psychological line and the T-line, even while resisting decline thereby staying above the two moving averages of 50-EMA and 50-SMA in the midst of changing market fundamentals and technical to indicate slowing momentum. We note that the economic reforms of the Ahmed Tinubu 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 continued mismatch of these and previous policies. There are also issues with the implementation style in the face of oscillating oil production output even as the Naira continues to depreciate at a time that oil is selling above $84 per barrel in the international market.

Also on Wednesday, Mayer Plc notified the market of its closed period and board meeting, just as more companies notified the NGX of their forthcoming Annual General Meetings. Similarly, some others presented resolutions at such meetings with the latest coming from Tourist Company and Prestige Assurance. Airtel Africa continued to update the market of its ongoing share buyback, while UBA and Julius Berger informed the Exchange of insider dealings in their 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 set for a reversal with a bottom pattern reversal as revealed by the candlestick formation, despite the seeming weakness in the momentum indicators. As ADX inched down at 20.57, while RSI and Money Flow Index were mixed to read 53.41 and 30.82 points against the previous session 53.49 and 29.38 points respectively. Market players should watch this current trend and trade with caution as reversal is underway in the face of funds leaving the market on profit taking. Also, trading volume pattern continued to oscillates, suggesting selloffs and buying interest in some sectors in the midst of wait and see attitude ahead of Q2 corporate 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 price at the midweek fell as oscillation in its price continued, trading at $84.44 per barrel in the midst of weak economic data from China and drop in US inventories. However, demand outlook for oil seem positive ahead US CPI reports that will give more light on US rate cuts. Even as China trade war with the west remain a concern for market players across the globe. As increasing geopolitical tension across many economies threats economic activities in the face of sticky inflation. This trend may likely continue in 2024, while the up and down movement continues to drive volatility, even as ceases fire discussion is ongoing to resolve the Middle East conflict, even as the raging war between Ukraine and Russia continues to influence global oil supply and demand.

Meanwhile, midweek’s trading opened on the downside, and was sustained for the rest of the session, despite oscillating to resist decline on buying interest across some major sectors and profit taking in financial services stocks, a situation that pushed the NGX’s index to an intra-day low of 99,702.41bps from its highs of 99,812.23bps, before closing marginally below its opening level at 99,802.08bps.

Market technicals for the session were positive and mixed with high volume when compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 91% buy position and 9% sell volume. The total transaction volume index stood at 1.68 points, just as energy behind the day’s performance was weak as Money Flow Index  inched up to read 30.82pts, from the previous day’s 29.38pts, indicating that funds entered   the market, despite closing flat.

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Index and Market Caps

The composite NGXASI slipped by 3.87 basis points, closing at 99,802.08bps after opening at 99,805.95bps, representing a 0.04% drop. Market capitalization fell by N2.18bn, closing at N56.46tr from the previous day’s N56.46tr, which also represented a 0.04% value loss.

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The downturn was driven by profit taking and selloffs in the shares of GTCO, UBA, Zenith Bank, Cornerstone, Wema Bank and CWG among others.  The day’s loss impacted mildly on Year-To-Date growth as  it slipped to 33.45%, while Market capitalization YTD gain fell to N11.52tr, representing 39.96% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, save for the NGX Banking and Insurance  index that closed lower by 0.39% and 0.18% respectively, while NGX Energy index led the advancers after gaining 0.37%, followed by Consumer goods and Industrial goods  with 0.34% and 0.02% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 26:22, while transactions in volume and value were mixed after players exchanged 935.15 million shares worth N11.84bn. Volume was driven by trades in Fidelity Bank, Zenith Bank, UBA, GTCO and Veritas Kapital.

ABC Transport and Eterna were the best performing stocks, gaining 10% and 9.88% respectively, closing at N0.77 and N18.35 per share respectively on market forces and sentiment. On the flip side, Thomas Watt and Daarcomm lost 10% and 8.77% respectively, closing at N2.16 and N0.52 per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed sentiments and bargain hunting as pullbacks had  created new entry opportunities for discerning market players ahead of earnings reporting season kicking off any moment from now, as portfolios repositioning continue, while taking 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