Cautious Trading Lingers, As Investors Realign Portfolios, Await H1 Earnings Inflow, Interim Dividend

Market Update for July 6

Bearish sentiments and mood persisted on the NGX Exchange at the midweek on the back of indecision and bargain hunting in the midst of continued portfolio realignment as the half-year earnings report season draw closer still. The pullbacks have, however, created ‘buy’ opportunities for discerning investors and traders targeting the emerging new leaders they missed when the market was rallying. Thereby extending the bear run for the third successive sessions on a low traded volume and slightly positive market breadth, just as the short supply in the market indicates players are not already to sell, as they wait to see the latest economic data and corporate numbers. Also, the possibility of markup by smart money that supports reversal pattern is underway as we look to market forces on Thursday for confirmation.

As the market extends its the decline phase in the new and changing market environment, we look forward to a mixed July, as factors that kept the market on its oscillating trend remain unchanged. This is happening amidst expectation of interim dividend paying corporate earnings and others to be game changers as we go further into the month with increasing political activities ahead of 2023 general elections and ongoing war between Russia and Ukraine.

To navigate the month profitability using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 selling sentiment witnessed since the beginning of the week, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index action is on correction phase on a daily time frame, supported by selloffs in blue chip companies ahead of financial news. The daily index and price actions as we go into the month will give direction as to what we should do and expect in Q3, just as more insights into the entire second-half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.

Market players are implored to watch the price actions and volume, which simply mean that the market tells you what to do, and not the other way around, because the price is always right and does not care whatever a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account if a stop loss is not in use.

Oil prices pulled back again in the international market, trading at $101.80 per barrel, after plummeting below its psychological important level of $100 as worry about weakening demand on increasing fear of recession, even amidst fear that oil markets could face a doomsday scenario this week or beyond, if OPEC has enough capacity to avoid supply problem as long as the ongoing Russia-Ukraine war persists. Also, the G7 nations plan to cap the price Russian oil, as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distance time as institutional investors balance their portfolios.

Technically, the NGX index action has confirmed the decline phase of the market, as it trades below the ‘T-Line’ and above the 50-day moving average, with the market remaining strong, despite the correction. The strong support level has been within the 50,000 basis points region, while volatility persists and correction towards the next breakdown is sported around 51,591.27bps. Should the index break this point, the next visible support is 51,423.75bps.

The possibility of the trend being sustained is high, and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Midweek’s trading started slightly on the upside and oscillated for the rest of the session on position-taking and selloffs in blue chip stocks, a situation that pushed the NGX’s index to an intraday low of 51,553.86bps from its highs of 51,612.97ps before closing below its opening points at 51,556.54bps.

Market technicals were negative and mixed, as volume traded was lower than the previous day in the midst of breadth favoring bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 95% sell position and 5% buy volume. The total transaction volume index stood at 0.51 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking down at 35.13pts, from the previous day’s 34.25pts, indicating that funds entered the market, despite closing down

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Index and Market Caps

At the end of Wednesday’s trading, the benchmark index NGXASI shed 29.96bps, closing at 51,556.54bps, after opening at 51,586.50bps, representing a 0.06% drop. Similarly, market capitalization fell by N16.15 bn, closing at N27.79tr, from the previous day’s N27.81tr, which also represented a 0.06% value loss.

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Meanwhile, midweek’s downturn was driven by selloffs in UBN, NEM, Champion, International Breweries, GTCO, Oando, NGXGROUP, Jaiz Bank and Fidelity Bank, among others. This impacted mildly on Year-To-Date gain, reducing it to 20.69%, while market capitalization growth dropped to N5.46tr YTD, representing a 24.67% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Industrial Goods that closed flat, while the NGX Insurance led the decliners after losing 1.36%, followed by Banking, Energy and Consumer goods with 0.60%, 0.16% and 0.03% respectively.

Market breadth remained slightly positive, as gainers outnumbered losers in the ratio of 17:16; just as activities in volume and value terms were down, after stockbrokers transacted 135.26m shares worth N1.44bn, with volume driven by trades in Transcorp. GTCO, UPDC, UBA and Chams.

Academy Press and Consolidated Hallmark Insurance were the best-performing stocks after gaining 8.79% and 8.70% while closing at N1.57 and N0.75 per share respectively on bonus payment and market forces. On the flip side, NEM Insurance and Champion Breweries lost 10% each, closing at N3.42 and N3.60 per share, on profit taking and selloffs.


Market Outlook

We expect cautious trading in the midst of portfolio reshuffling to continue, ahead of the interim dividend season and second-half of the year, while Investors digest the March audited accounts released. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and Q4 unaudited earnings released so far. Analysts are also on the lookout for the inflation rate of 17.71% to support recovery in the new month amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605

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