Cautious Trading May Linger, As Investors Review Inflation Data Impact Ahead MPC Meeting
Market Update for September 16
Trading activities on Nigerian Exchange started for the new week negative, as investors continued to digest the impact of the latest inflation report on their investments, ahead of next week’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee. The silence by players, and selloffs in blue chips reflected on the benchmark NGX All-Share index which as it closed marginally lower, thereby extending the negative sentiment for a fourth consecutive session.
Also, investors continued to sit on the fence, while adjusting to the new stagflation trading environment as revealed by the 20.52% growth in the consumer price index for the month of August, as well as the low traded volume in the face of a flat market breadth and low liquidity. The continued cautious trading in the equity space is due to increasing and oscillating in fixed income yields. But in hedging against inflation that is above 20%, some sectors and individual equities remain the best bet for capital preservation and growth in this changing environment. It is imperative that investors should just switch to defensive mode in those sectors and individual stocks with higher earnings powers and positive technicals position.
Despite, the bear run, the market internals are revealing the hidden forces that work for both short and long-term traders to get into the best position and allow you to stay in them for maximum profit. The market’s internals measure the forces behind the advancers and associated volume of the uptick or downtick. These two ratios tell you everything you need to know to predict future price movement. So, the volume pattern and index structure in recent sessions show position taking, while funds enter some stocks as revealed by money flow index which need to be confirmed, especially as mixed sentiment recorded at the end Monday trading and candlestick formation signal reversal pattern ahead.
At the current declining phase, the decision of whether when to buy or sell, on individual stocks or an index, is always based on price actions and the money flow direction which combines price and volume. We only want to hold stocks that are increasing, or at least retaining their value, while avoiding equities that are on the decline, and the toolset to evaluate price action is technical analysis.
The contemporary technical analysis that works in the changing volatile market, is what you should adopt. That is why it’s never been more important to join me at the upcoming Q4 Master Class in October, the largest quarterly traders summit in Nigeria. I will be sharing new actionable strategies and real trading education that will arm you with the tools that will help you meet your financial goals for the rest of the year 2022 and beyond. Just as the last quarter of the year is around the corner, are you prepare to take advantage of seasonality to recover your losses and boost your gains.
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Oil prices continued to oscillate as it trades at $92.44 as the fear of demand as result of continued aggressive rate hike and recession around the corner in the face of supply tighten, as China battle with Covid 19 lockdown. The up and down movement in oil price, has also continues to drive volatility in the face of rising interest rates and inflation. Despite the bailout package of the Chinese government to simulate economic activates and stable employment, as well as that of Germany aimed at managing the energy crisis.
Meanwhile, Monday’s trading opened slightly in the downside and oscillated for the rest of the session on selloffs in some blue-chips stocks, a situation that pushed the NGX’s index to an intraday low of 49,400.12bps from its highs of 49,478.45ps, before closing below its opening figure at 49,440.21bps.
Market technicals were mixed and weak, with lower volume of shares traded than the previous day in the midst of flat breadth and mixed sentiment as revealed by Investdata’s Sentiments Report showing 49% sell position and 51% buy volume. The total transaction volume index stood at 0.37points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is looking up at 53.11pts, from the previous day’s 51.92pts, indicating that funds entered the market, despite closing lower.
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Index and Market Caps
The NGXASI, at the end of Monday’s trading shed 35.45bps, closing at 49,440.21bps, after opening at 49,475.42bps, representing a 0.07% drop, just as market capitalization fell by N18.99bn, closing at N26.67tr, from the previous day’s N26.69tr, which also represented a 0.07% value loss.
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The session downturn was driven by selloffs and profit taking in Seplat, UCap, GTCO, University Press, Mansard Insurance, Linkage Assurance, Courtville, and Jaiz Bank among others, which impacted mildly on Year-To-Date gain, which reduced to 15.74%. Market capitalization gain YTD also rose to N2.94tr YTD, representing a 19.60% rise over the opening level for the year.
Mixed Sector Indices
Sectorial performance indexes were mixed, as the NGX Banking and Consumer goods closed higher by 0.28% and 0.17% respectively, while the NGX Oil/Gas index led the decliners after shedding 1.94%, followed by Insurance with 0.25%. Just as NGX Industrial goods close flat.
Market breadth was at par, as losers were equal to gainers in the ratio of 11:11; just as activities in volume and value were mixed, as investors exchanged 67.37m shares worth N1.48bn, with volume driven by trades in FBNH, Zenith Bank, GTCO, Mutual Benefits Assurance and Sovereign Trust Insurance.
Etranzact and Academy Press were the best-performing stocks, gaining 9.97% and 9.52% respectively, closing at N3.20 and N1.84 per share respectively on market forces. On the flip side, ABC Transport and University Press lost 10% and 9.44% respectively, closing at N0.27and N1.63 per share, purely on selloffs and profit taking.
We expect cautious trading to continue as investors digest the latest inflation data and recent results from the banking sector, especially those with interim dividend payout ahead of next MPC meeting, while portfolio rebalancing continues on bargain hunting in the midst of the worsening sovereign risks.
We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for August CPI and flow of funds amid oil prices oscillation.
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