Bear Sentiment Yet, As TB High Yields Lure Investors, Ahead Of Inflation Data, MPC Outcome

Market Update for February    8

Bearish sentiment continued on the Nigerian Exchange on Thursday as the increased Treasury Bills’ rates weighed on the market with institutional investors and others selling off to rebalance their portfolios for safety, ahead of this month’s policy meeting. Already, the Central Bank of Nigeria has signaled a return to orthodox monetary policy in its bid to attract foreign portfolio investments and boost US Dollar inflows to the country, even if at the detriment of economic growth and business expansion as cost of funds spike due to the decision. Meanwhile, cost of borrowing has increased, impacting many businesses, while at the same time leading to high cost of servicing government local debts. We have noticed government dominating the fixed income market with high rates and yields.

The composite NGX All-Share index closed lower on a low traded volume and negative market breadth in the midst of panic selling and expectation of full-year corporate earnings reports, while investors continue to digest and react to the latest TB rates hike. Consequently, the NGX index’s action broke down the T-line, confirming the change in trend to distribution and decline phase, ahead of the 20-Day Moving Average. The correction and mix trend in February will continue before another rebound on the strength of audited earnings reports and dividend season in the midst of volatility. However, double bottom chart pattern may trigger reversal or continuation of trend which needs confirmation as trading opens on Friday. It will also depend on market forces and sentiments, considering the recent activities in the fixed income market.

The NGX again witnessed another round of selloffs in some sectors and stocks in the midst of continued sector rotation and portfolio repositioning as pullbacks create opportunity for new entrance. Investors should watch out for the value areas of resistances and supports levels ahead of company results hitting the market any moment from now. The NGX has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism that was fueled by the belief that the impressive performance from the financial sector. There is also the growth prospect of the economy in the face of rising macroeconomic headwinds that will support rebound and revaluation of assets in 2024.

The stock market is a leading indicator of the economy, as such all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action remains above the T-line on daily basis in the midst of high volatility and positive momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility.

The candlestick formation and double bottom chart pattern at the end of Thursday trading  revealed a reversal or continuation of downtrend, depending on market forces and sentiments.  Therefore, market players should 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 index’s action is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The weakness of momentum indicators continue, as market trend changed even at this overbought region, with ADX looking down to read 76.88, while RSI and Money Flow Index are looking down at 70.97 and 67.50 points against the previous session 74.41 and 73.65 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are leaving the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and negative.  Also, the anticipated financial market and economic reset in 2024, comes with challenges and huge opportunities to create wealth for smart investors and traders.

To navigate the rest of the quarter 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 extended its gains on Thursday to continue its oscillation, as it trades at $81.80 per barrel in the midst of US inventories falling and escalating Middle East conflict, while Ukraine and Russia war persists.  The rising geopolitical tension across the globe is also a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Meanwhile, Thursday’s trading opened sharply in the downside and was sustained despite oscillating throughout the session on profit taking across low, medium and large cap stocks. There was demand for few stocks, a situation that pushed the NGX’s index to an intraday low of 100,661.02 basis points, from its highs of 102,106.30bps, before closing below its opening figure at 101,227.42bps.

Market technicals were negative and mixed, as volume was higher compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 39% buy position and 61% sell volume. The total transaction volume index stood at 0.60 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is  looking  down at 67.50pts, from the previous day’s  73.65pts, indicating that funds left the market.

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Index and Market Caps

At the end of Thursday’s trading, the benchmark NGXASI lost 878.89bps, closing at 101,227.42 after opening at 102,106.31bps, representing a 0.86% decline, just as market capitalization shed N480.78bn, closing at N55.39tr from the previous day’s N55.87tr, which also represented a 0.86%  depreciation in value.

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The downturn was driven by selloffs in Stanbic IBTC, Dangote Sugar, Transcorp, Mansard, Aiico, Wapco, PZ, Nascon, Zenith Bank and Accesscorp, among others, which impacted negatively on Year-To-Date gain as it reduce to 35.4%. Market capitalization YTD gain stood at N14.72tr, representing 35.5% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session closed red, led by NGX Insurance index after losing 4.19%, followed by Banking, Consumer goods, Energy and Industrial goods with 2.33%, 1.90%, 0.49% and 0.30% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 53:7, while transactions in volume and value were up after stockbrokers traded 478.38m shares worth N7.17bn. Volume was driven by trades in, Universal Insurance, Transcorp, Zenith Bank, UBA and Accesscorp.

Meyer and  Juli Pharmacy  were the best performing stocks, gaining 9.97% and 9.52% respectively, closing at N6.29 and N0.92 per share respectively on  market forces and  sentiments.  On the flip side, Unity Bank and SterlingNG lost 10% each, closing at N2.52 and N5.31 per share, purely on profit taking and selloffs.

Market Outlook

We expect bear sentiment to continue as investors run for safety in fixed income instrument due to high yields in the face of dividend expectations and volatility ahead of January CPI and upcoming policy meeting, while pullback at this point will add more strength to upside potential. As such, 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

Tel: 08028164085, 08179547605