Candlestick Formation Pattern Supports NGSE Reversal, But Q3 Earnings Are Key

Market Update for October 14

Volatility and intraday mixed trend on the Nigerian Stock Exchange (NSE) continued at the midweek as the bulls and bears battled for dominance, with the session closing flat as the All-Share index resisted further decline on a below-average traded volume. 

The two previous days of positive outing revealed improved buying sentiments, despite being on a low momentum that supported the NSE’s sectorial performance indexes which have been positive. This is in addition to the general market in the most recent sessions, following which the overall outlook remain bullish. Focus on diversifying your long trades in sectors that have appreciated, looking at Telecoms and Agribusiness which have shown the most strength.

More notices of board meetings and closed period by quoted companies continue to hit the market, in addition to earnings forecasts to pre-inform investors about their projected future performance. 

For now, all eyes are on the Q3 numbers for the period ended September 30, 2020, even as investors look at prevailing fundamentals, technicals, sentiments, and capital analyses. This is especially true, now that low rates in the money market and low yields in the fixed income markets are driving funds to equities in search of higher dividend yields and capital protection in hedging against inflation.

The NSE’s benchmark index resisted further decline at a time youth across the country continue their protest against police brutality, and emerging negative macroeconomic data further confirming the strong disconnection with economic realities. Positive Q3 earnings are likely to fuel a resurgence of the ongoing recovery to create wealth for discerning investors and traders.

Meanwhile, midweek’s trading opened on the upside before vacillating between the mid-morning and late afternoon on positioning and profit taking that pulled the NSE index to an intraday high of 28,389 basis points, from a low of 28,299.61bps, before closing the session slightly higher than it opened at 28,344.33bps on a positive breadth.

Market technicals on Wednesday were positive and weak with lower volume traded than in the previous session, and breadth that favoured the bulls on selling sentiments, as revealed by Investdata’s Sentiment Report showing 24% ‘buy’ volume and 78% sell position.

Total transaction volume index stood at 0.62 points, just as impetus behind the day’s performance remained strong, while Money Flow Index printed 79.08 points, from the previous day’s 79.58 points, an indication that funds entered some stocks.

Index and Market Caps

The composite NSEASI oscillated at the midweek, closing slightly up by 0.29bps, closing at 28,344.33bps after opening at 28,344.04bps, representing 0.001% rise. Market capitalization crawled N150m up at N14.82tr, which also represented 0.01% value gain.

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The day’s upturn was due to sustained positive sentiment and renewed buying interests in Guaranty Trust Bank, Zenith Bank, Lafarge Africa, Guinness, PZ Cussons, Africa Prudential, Eterna and Cornerstone Insurance. These impacted mildly on the index leaving Year-To-Date gains at 5.60%, and Market capitalization YTD gain slowed down to N1.86bn, or 14.37% above the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were bullish, except for the NSE Oil/Gas that shed 0.17%, while the NSE Insurance topped the advancers with 0.60%, followed by Banking which inched 0.46% up, next were Consumer and Industrial Goodsafter, gaining 0.21% and 0.15% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 14:11, while activity in volume and value terms were down by 59.24% and 37.46% respectively, as players exchanged 278.42m shares worth N3.14bn, as against the previous 535.83m units valued at N5.02bn. Volume was boosted by trades in Zenith Bank, UBA, Guaranty Trust Bank, FBNH and Wema Bank.

Eterna which had rallied for five consecutive sessions and Academy Press were the best performing stocks after gaining 9.8% and 7.4% respectively, closing at N4.81 and N0.29 each on market sentiment and forces. On the flip side, eTranzact and Wema Bank lost 9.9% and 5.2% respectively, closing at N1.91 and N0.55 respectively on profit taking.

Market Outlook

We expect this volatility to continue, even as  the market seem to range, looking at candlestick formation pattern that equally  supports a reversal, ahead of the Q3 corporate earnings season and healthy inflow of funds due to prevailing low rates in money market. We also project inflation would continue its upward movement, with the rate in September projected to be in the region of 13.32%, thereby worsening the negative returns in many investment windows.

The mixed intraday movement is likely to persist this October in the midst of expected earnings, profit booking, as well as the mismatch in economic policies and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

Again, the current undervalue 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 for the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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