Cautious Trading Yet On NGSE, But Knowing Stocks Selling At Discount Is Key

Market Update for December 16

Midweek’s was another volatile and mixed session on the Nigerian Stock Exchange, as the benchmark All-Share index sustained a positive ride for the third successive day, closing higher, and wiping away the previous week’s loss on a very high traded volume and buying pressure.  Money flow index revealed the entrance of funds into the equity space, amidst the low interest rates regime and rising inflation that has further throw other investment window into real negative return.

There is also the possibility of Wednesday’s sustained rebound being related to the Federal Government’s decision to finally open four of the nation’s land borders namely: Seme in the Southwest; Ilela, Northwest, Mfun, Southsouth; and Maigatari, Northwest.

There was a partial breakout of the 35,342.46 resistance level to support the ongoing recovery, but a new trend will be confirmed when the NSE index action breaks out the 35,814.18 and 36,000 psychological lines, with technical indicators already signaling an uptrend which Thursday’s trading will confirm as a real breakout or bull-trap.

Meanwhile, a breakout of the last resistance level will usher in the Santa Claus rally, a trend associated with December trading activities and sentiments, even as the market has a trading pattern that supports an uptrend, especially from mid-month to the New Year, due to a positive seasonal trend or bias, suggesting that anything is still possible, considering the impact of vaccines for the Coronavirus pandemic and oscillating oil prices on the global and domestic economies. 

Midweek’s trading opened in the green and was sustained throughout the session despite oscillating in the afternoon on repositioning ahead of year-end and profit booking that pushed the composite index to an intraday high of 35,554.11 basis points from its low of 34,834.786bps. Thereafter, it closed the day higher at 35,493.15bps.

Market technicals were positive and strong, with volume traded higher than the previous day in the midst of breadth favoring the bullson positive sentiment as revealed by Investdata’s Sentiments Report showing 81% ‘buy’ volume and 19% ‘sell’ position.

Total transaction volume index stood at 1.28 points, just as the momentum behind the day’s performance was relatively weak, with Money flow index looking up at 45.17pts, from the previous day’s 40.63pts, an indication that funds entered the market. This can be translated to mean that the some of the expected inflow from the recent CBN policy on excess Cash Reserve Requirement (CRR), and others news hit the market.

Index and Market Caps

The NSE All-Share index, at the end of the trading, gained 267.93 basis points, representing a 0.76% up, from its 35,225.22bps opening, just as market capitalization rose by N140.03bn to N18.55tr, from N18.41tr, also representing 0.76%  value gain.

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The uptrend at midweek resulted from price appreciation by manufacturing stocks, like Nestle, Flour Mills, and Guinness Nigeria; as well as others such as Guaranty Trust Bank, Zenith Bank, Access Bank, and AXA Marsard Insurance. These impacted positively on Year-To-Date gains which increased to 32.23%, just as YTD gain in market capitalization grew to N5.59tr, representing a 42.93% growth above the opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, with the NSE Oil/Gas and Industrial Goods closing 0.33% and 0.17% lower respectively, while Banking led the advancers after gaining 1.86%, followed by Insurance and Consumer Goods which notched 1.63% and 1.41% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 26:13; activities in volume and value terms were mixed with volume rising by 146.19% to 650.55m shares, from previous day’s 264.24m units, while value fell by 22.39% to N2.29bn, when compared to previous day’s N2.95bn. Volume was driven by Jaiz Bank, AXA Mansard Insurance, Zenith Bank, Skyway Aviation and Access Bank.

AXA Mansard Insurance and May & Baker were the best performing stocks during the session, gaining 10% and 9.89% respectively to close at N0.77and N3.89 per share, on low price attraction and strong earnings. On the flip side, Cornerstone Insurance and Linkage Assurance lost 8.33% and 8.16% of their value, closing at N0.55 and N0.45 per share, on profit taking and market forces.

Market Outlook

We expect this trend to continue depending on the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current dividend yields provided by the pullbacks, while bargain hunters take advantage of the situation to reposition. Investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations. A breakout of 36,000 points will confirm a new uptrend as the market awaits the circular flow of funds to settle in higher yields instruments with a shorter timeframe, while waiting to see the impact of the adjustment in CBN policies. A breakout of this resistance level will create buy opportunities for discerning traders and investors.

Also important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued 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 in the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467