Expect Mixed Sentiment, As Investors Position Ahead Of Pullbacks In Sound Stocks
Market Update for the Week Ended Nov 5 and Outlook for Nov 8-12
The nation’s equity market during the just ended week witnessed post-earnings season profit-taking that halted a seventh successive week of bull transition on a low traded volume and negative breadth as selloffs hit some of the major sectors ahead of year-end seasonality and repositioning for 2021 dividend expectations.
The economy has its own four cycles which are determined by such economic indicators as interest rates, inflation, and national output/productivity which enable investors to identify which sectors have done or will do well. Understanding market structure using technical analysis will tell us the current phase of the market, which will enable us to apply the right strategies to win big.
However, to improve your profit-taking strategy is to sell when many traders are buying into positions. This is a smart way of taking profits because large moves are often followed by digestion days, where the market consolidates or pulls back for a breather. Knowing where to take profit is a highly debated issue or topic among traders. There have been pre-determined rules for selling or profit-taking.
we envisage a mixed trading pattern due to bargain hunting activities in dividend-paying stocks amid intermittent profit-taking activities. That notwithstanding, we advise market players to position in fundamentally sound stocks with positive technicals and sentiment as market fundamental and liquidity keep looking up in the face of oil price trading above $84 in the international market, while the nation external reserves hit $40 billion again.
Technically, the NGX index’s action on a weekly time frame reveals mixed sentiments, as ADX remained above 20 points at 30.64, just as the money flow index was up at 76.58 points, revealing the increase in money flow to the equity space. These are indications that confirm the daily move and volatility, as the NGX index has rebounded again to break out the strong resistance level of 42,000 basis points which signals the possibility of trend continuation on the daily and weekly chart with the index resisting a further decline. So, we have to wait to see what happens in the new week as analysts interpret the various Q3 earnings reports.
The low traded volume, during the week, is an indication that institutional investors are not selling and the volume that took the market up is still very intact. The light volume on the profit-taking activities shows that retail investors like you and I are the ones booking profits.
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Movement Of NGXASI
The NGX index had a mixed trend of three down sessions and two up days. The week’s trading for the week opened on the downside on Monday, as a result of profit-taking before the market retraced up on Tuesday following the increased buying interests in banking and industrial goods stocks. There was a pullback at the midweek and Thursday, when the benchmark index shed 0.09% and 0.08% respectively, while the index rebounded on Friday by 0.17%, bringing the week’s total loss to 0.06%, compared to the previous week’s 0.46% gain. This performance was driven by selloffs and buy an interest in bellwether stocks.
Consequently, the key performance index shed 24.10 basis points, closing at 42,014.50bps, after touching an intra-week low of 41,930.73bps from its highs of 42,151.01bps, as the week’s opening figure was 42,038.60bps on mixed sentiments and profit-taking in low, medium, and high priced stocks. Market capitalization during the period fell by N12.58bn, closing at N21.93tr, compared to the previous week’s N21.93tr, which also represented a 0.06% value loss.
The week’s top gainers table was dominated by low and medium-priced stocks which had become the toast of investors, despite the negative and selling sentiments. There were due to positive sentiment for Regency Assurance, SCOA, Wema Bank, Fidson Healthcare, University Press, Okomu Oil, and GSK, in the midst of the continued portfolio repositioning on the strength of the recently published nine-month earnings reports and positive economic data. It is noteworthy that the NGX Index and price actions revealed the presence of sellers in the market, a situation that reflects on some sectorial indexes.
Market breadth was slightly negative for the week in the midst of low traded volume and better than expected earnings performance that are likely to support recovery in the short to long run as investors increase their stake on a pullback. Decliners outnumbered advancers in the ratio of 43:23, on a negative sentiment as revealed by investors’ sentiment report showing a 62% sell volume and 38% buy position. Money Flow Index rose to 76.58bps from the previous week’s 76.38 points, an indication that some funds entered the market.
NSEASI WEEKLY CHART MOVEMENT
The NGX index’s action, on a weekly chart, maintained a bullish inverted head, shoulder, and saucer chart pattern that supports and indicates an imminent uptrend but on low volume traded. The candlestick pattern at the end of last week was equally bullish to indicate that the market is resisting further decline, as the slowdown in the benchmark index after seven consecutive weeks of positive outing reveals a cautious investing, and indecision as many players stayed on the fence during the period. The index action is set to break out its strong resistances levels of 42,151.40 and 42,248.16bps on expected renewed buying interests in the new trading week that will support an uptrend. However, we need to watch out, the outcome of earnings analysis. Also with all eyes on 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, with the NGX Insurance and Industrial Goods indices chalking 0.99% and 0.88% respectively, while the NGX Banking led the decliners after losing 1.73%, followed by Energy and Consumer Goods with 1.63% and 0.74% respectively. Activities in volume and value terms were down, as players exchanged 1.43bn shares worth N12.37bn, compared to the previous week’s 3bn units valued at N34.55bn. Volume was driven by Financial Services, Conglomerates, and Consumer goods, particularly FBN Holdings, Sterling Bank, UBA, Access Bank, and Transcorp.
The best-performing stocks for the week were Regency Assurance and Multiverse Mining which gained 18.92% and 10% respectively, closing at N0.44 and N0.22 per share respectively on market forces. On the flip side, Eterna and Unilever lost 15.49% and 14.42% respectively, at N07.31 and N13.35per share, purely market forces and profit-taking.
Outlook for the week
We expect a mixed sentiment, as investors and bargain hunters continue to take advantage of price pullback in fundamentally sound stocks for repositioning. It is also noteworthy that fund and portfolio managers continue to take a position on Q3 numbers ahead of the current financial year-end. For now, many stocks remain in their buy range to attract funds into the equity space. Also, investors will continue tracking yields 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 low volume suggests that institutional investors are not selling. 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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