Expect Mixed Sentiment On Profit Taking As 2022 Winds Down, Amid Possible Retracement

Market Update for the Week Ended December 23 and Outlook for Dec 28-30

The last full trading week of 2022 ended Friday, December 23, 2022, with the Nigerian Exchan sustaining the bull-run for the sixth successive week on buying power across the blue-chip, medium and low cap companies in the midst of strong momentum, end of year seasonality and window dressing by fund managers, among others.

The composite NGX All-Share Index over the period closed higher, trading above its 200-Day Moving Average, heading to the 50,000 psychological line, on the Santa Claus rally after the holidays, as the NGX uptrend and recovery continue into the New Year on above average traded volume and stronger positive market breadth.

Under the current situation, it is very important for players to understand the impact of market and economic cycles in their investment decisions, knowing that traders and investors are looking to pull money out of the market regularly by way of profit taking. As such, the only thing you are really looking for is a situation where the price of stocks you bought move in your favour. As such, common sense dictates that “Only Price Pays,” not news, not how much we love a stock or the company. If the price does not move, you do not make any money.

If price movement is what pays us, then it is only logical that we focus mainly on the price. Most indicators are based on price, so they lag the last traded price for an investment.  So, we focus on price action or structure, momentum and timing.

As the year 2022 winds down, the eyes of all market player are on the expected unaudited full year accounts of many listed companies, as they digest the latest macroeconomic reports ranging from the November Purchasing Managers’ Index, consumer price index and declining yields in fixed income market, especially treasure bill primary market auction rates. In all these, the negative aggressive rates hike by the Central Bank of Nigeria (CBN) as it moves to combat the rampaging inflation continues to affect investment decisions and choice of assets. This has been worsened by the policy summersaults of the government and its economic managers, amid the changing economic and political environment.

The buying patterns in the month of December and the week under review, indicates that funds are flowing into the market, notwithstanding the relatively low traded volume that is yet to really confirm the presence of institutional investors.

We note the increasing volume in some individual stocks in the market, given that the NGX index has technically sustained its rally, as revealed by the trends in short, medium and long term, coupled with momentum indicators. Also, NGX index is trading above the 200-Day SMA on a bullish channel, trading above the T-Line and 50-Day EMA on the weekly chart. At this point, the possibility of institutional investors’ entry the market ahead of year-end seasonality and corporate actions in 2023 is high.

Also, profit-taking is expected at this stage after the market had rallied for six consecutive weeks, resulting in a 4.29% month-to-date gain, as investors continue realignment of their portfolios on the strength of corporate earnings and the ongoing Santa Claus rally. Also, players are viewing all of these against the backdrop of the rampaging inflation as they hedge against the rising prices of goods and services in some stocks with high dividend yields and strong earnings to support higher payout as financial year end of many companies with December are around the corner.

To navigate the rest of the year and 2023 profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also 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 low volume of transaction witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

As oil price continues its oscillation, to trade at $83.92 per barrel, as Russia says it may cut production in the midst of increasing fear of recession as another rate hike by the Feds and ECB, Russia oil caped and China confusing rising cases of Covid 19 with its restriction and reopening, geopolitical tension and inflation across the globe. Also supply tighten due to the Russia-Ukraine war that has been lingering.  The up and down movement of oil price also continues to drive volatility across the globe.

Movement Of NGXASI

The Santa Claus rally continued in the week under review on a positive sentiment and buying interest in the five trading days, despite profit taking activities, as demand for blue chip stocks, especially medium cap and others that supported the gain, breaking out resistance levels of 49,578.65 pints to test 49,737.10 on a relatively low traded volume for the period.

The week’s trading opened on a positive note, extending the previous session’s gain by 0.17%, which was sustained on Tuesday and throughout the week, gaining 0.01%, 0.07%, 0.12% and 0.42% respectively on Wednesday, Thursday and Friday. This brought the week’s total gain to 0.89%, compared to the previous week’s 0.79% gain.

In all, the benchmark NGX All-Share Index gained 389.80 basis points, closing at 49,706.09bps, compared to the week’s 48,316.29 points opening level, after touching intra week high of 49,737.10 from its lows of 49,316.29points. Similarly, market capitalisation rose by N213bn, representing a 0.79% value gain for the week, as it closed at N27.07tr, from the previous week’s N26.86tr,

The top advancers’ table for period was dominated by low, medium and high cap stocks, amid buying sentiment in blue chip companies, despite the low volume and volatility, as portfolio repositioning continued. Also notable is the fact that investors are taking advantage of low price to buy into value and high dividend yield companies as recovery persist.

Market metrics indicate a positive breadth as gainers outnumbered losers in the ratio of 41:32 on a buying pressure as reveal by investdata sentiment report showing 93% ‘buy’ volume and 7% sell position. Money Flow Index looking up to 43.35bps, from the previous week’s 35.61points, an indication that funds entered the market on a weekly chart to reflect positioning, despite profit taking in some stocks.

The NGX index’s action has formed a V shape bullish pattern on a weekly chart, trading above the T-line and 200-DMA, reaching a topping level that signaled profit taking or continuation of trend on a positive breakouts heading for 50,000 mark, that needs confirmation after the long Christmas holidays when the market opens on Wednesday. We note that the volume that supported this recovery and rally remain weak and below the market’s traded average, just as corporate actions and year-end seasonality could support the uptrend further in the last few trading days of the year 2022. 

Bullish Sectoral Indices

Sectorial performance indexes for the week closed green, as NGX Banking led the advancers’ after gaining 1.97%, followed by Consumer goods, Energy, Insurance and Industrial goods with 0.98%, 0.91%, 0.32% and 0.04% respectively.

Transactions in volume and value were up, as investors exchanged 860.93m shares worth N16.13bn, compared to the previous week’s 814.09m units valued at N12.20bn, with volume driven by Financial Services, Construction/ Real Estate and consumer goods. Specifically, the week’s volume was driven by trades in UPDC REIT, FBNH, GTCO, Sterling Bank and Transcorp.

Thomas Wyatt and Royal Exchange were the best-performing stocks during the week, gaining 42.11% and 16.67% respectively, closing at N0.81 and N0.98per share on market forces. On the flip side, UPDC and PZ Cussons lost 8.08% and 8.06% respectively, at N0.91 and N11.40per share, purely on selloffs and profit taking.

Outlook for the week

We expect a mixed trend and sentiment being the last few trading sessions of the year 2022 on profit taking after NGX index had formed a topping pattern on a weekly and daily time frame, even as it eyes 50,000 psychological level in the new week, just as retracement to 49,578.12 mark and below is possible on selloffs as events unfold globally and domestically here in the midst of expected corporate actions and positioning for full year financials.

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