Bull-Run May Linger, On Quarterly Earnings Inflow, Positioning On Pullback
Market Update for the Week Ended October 22 and Outlook for 25-29
The positive investors’ vibes on the Nigerian Exchange continued for a sixth successive week of bullish transition on strong momentum as market players react to the inflow of impressive quarterly earnings released that have so far surpassed market expectations.
The earnings optimism and unclear direction of yields in the fixed income market have continued to dictate the flow of funds into the equity space and support the ongoing positive sentiments on the back of the seeming improved macroeconomic indices in a recovering economy. There are also trading patterns and strong consumer demand during this last quarter of the year in the midst of the seasonality and investors sentiments associated with the year-end behavioural patterns that equally influence the market positively.
The Q3 earnings season just entered its peak, being the last trading week of October and the deadline for submission of quarterly reports by various companies, a situation expected to fuel the bullish sentiment across the market. This is especially as the major companies make their numbers available to support the momentum, depending on the state of these reports.
However, we envisage a mixed trading pattern due to bargain hunting activities in dividend-paying stocks amid the intermittent profit-taking activities. That notwithstanding, we advise traders and investors to position in fundamentally sound stocks with positive technicals and sentiment as market fundamentals and liquidity continue to look up. This is in the face of the surging oil price now trading above $84 per barrel at the international market, even as the nation’s external reserve rose to $40 billion again.
Technically, the NGX All-Share index’s action on a weekly time frame reveals a positive momentum of 99% investor sentiments, as well as ADX above 20point to read 27.20, just as the money flow index was up at 74.57 points to reveal the increasing money flow in the equity space. These are indications that confirm the daily move and volatility, as the NGX index has broken out the strong resistance levels of 41,709.10 basis points to 41,737.10bps to confirm the continuation of an uptrend on the daily and weekly chart. So, we have to wait and see what happens in the new week as more corporate earnings are released to their impacts. Already, earnings reports from PZ, Unilever, Northern Nigerian Flourmills, and NPF Microfinance have been impressive to support their prices with the market reacting positively, while the numbers released by Stanbic IBTC and Africa Prudential are regarded as below market expectation just after their weak performance in previous quarters.
The high traded volume, during the week, despite the one-day holiday due to heavy trades in FBN Holdings, Etranzact and others are indications that institutional investors are returning to the market after studying the latest macroeconomic data, as well as developments in the fixed income market as more earnings reports are made public in the midst of month and year-end seasonality.
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Movement Of NGXASI
Trading activities were positive for three sessions, while there was a down market after the NGX index opened the week with a pullback on Monday due to profit-taking after which the market retraced up on the increased appetite for banking, energy, and industrial goods stocks, coupled with the positive sentiments across the market. The benchmark index was down 0.74% on the first trading day of the week but was short-lived at the midweek when the index gained 0.28%. The positive outing continued as the NGX index gained 1.10% and 0.14% on Thursday and Friday respectively, bringing the week’s total gain to 0.78%, compared to the previous week’s 1.39% positive position. This performance was driven by sustained investors ‘buy’ interest in bellwether stocks.
In absolute terms, the composite index gained 325.11 basis points, closing at 41,763.26bps, after touching an intra-week high of 41,770.60bps from the lows of 41,038.90bps, as the week’s opening figure was 41,438.15bps on positive sentiments for low, medium, and high priced stocks. Market capitalization during the period rose by N169bn, closing at N21.79tr, compared to the previous week’s N21.62tr, which also represented a 0.78% appreciation.
The top gainers’ table for the period was dominated by medium and high-priced stocks which had become the toast of investors, particularly NGX Group, Cutix, Unilever, Custodian Investment, Ecobank Transnational Incorporated, PZ Cussons, GSK, Nigerian Breweries, and BUA Cement, among others. This was due to positive sentiment and the continued repositioning of market players in expectation of more nine-month earnings reports and Q4 seasonality. The NGX Index and price actions revealed the presence of buyers in the market, a situation that is reflected on some sectorial indexes.
Market breadth was slightly negative for the week in the midst of high traded volume and mixed earnings performance that supports the recovery as investors increase their stakes. Decliners outnumbered advancers in the ratio of 36:34 during the week, on positive sentiments as revealed by investors’ sentiment report showing a 99% buy volume. Money Flow Index rose to 74.57bps from the previous week’s 68.84 points, an indication that some funds entered the market.
NSEASI WEEKLY CHART MOVEMENT
NGX index’s action, on a daily and weekly chart, has maintained a bullish inverted head and shoulder and saucer chart pattern respectively, that supports and indicates an uptrend as volume traded continued to rise. The candlestick pattern at the end of last week was equally bullish to represent strong buying positions, as the benchmark index maintained five consecutive weeks of positive outing to reveal a return of market players who had been sitting on the fence for a while. The index action is set to beak-out its strong resistances levels of 41,812.62 and 42,248.16, and psychological line of 42,000 on renewed buying interest that supports uptrend. However, we need to watch out, as market players digest corporate earnings released so far, fixed income market yields, and oil prices that should further support market fundamentals to attract liquidity to the equity space. A pullback at this point will create new buying opportunities.
Mixed Sectoral Indices
The performance indexes across the sector were mixed, as the NGX Insurance and Consumer Goods were down by 1.31% and 1.05% respectively, while NGX Industrial Goods led the advancers after gaining 2.59%, followed by Energy and Banking with 1.40% and 0.69% respectively. Transactions in volume and value terms were down, as players exchanged 1.57bn shares worth N18.38bn, compared to previous week’s 2.84bn units valued at N31.65bn. Volume was driven by Financial Services, ICT and Conglomerates, particularly FBN Holdings, Etranzact, Access Bank, Zenith Bank, and Transcorp.
NGXGroup and Cutix were the best-performing stocks during the week, after gaining 23.94% and 21% respectively, closing at N22.00 and N6.05 per share respectively on positive market sentiments and one-for-one bonus respectively. On the flip side, Royal Exchange and Universal Insurance lost 17.19% and 9.09% respectively, at N0.53 and N0.20per share, purely on the impact of market forces and selloffs.
Outlook for the week
We expect the bullish sentiment to continue, as investors react to the corporate earning so far released, even as we expect the release of more quarterly scorecards are made available and bargain hunters continue to take advantage of any price pullback in fundamentally sound stocks for positioning. It is also noteworthy that fund and portfolio managers continue to take position ahead of more Q3 numbers and year end. For now, many stocks remain in their buy range to attract funds into the equity space. Just as investors will continue track yield movement in the fixed income market. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. Last week’s highvolume suggests that institutional investors are entering the market and others. It is noteworthy that oil prices rebounded to trade above $84 in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.
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