Expect Mixed Sentiments Amid Profit Taking, Portfolios Repositioning On Low Valuation

Market Update for July 1, 2024

The first trading session in the month July on the Nigerian Exchange opened on a negative outing to halt the positive momentum of the previous month and the three consecutive sessions of bullish pattern on a low traded volume in the midst of negative market internals that ushered in the second half of the year ahead of Q2 earnings reporting season. Also, interim dividend notification  amid full-year rewards from insurance companies and March year-end accounts continued to hit the market, as the composite NGX All-Share index pulled back to form a top pattern that needs confirmation as trading opens today.

The changing market structure on the NGX continued as profit taking resurfaced after the recent end-of-quarter rally, as all eyes are on the early filers like Infinity Trust Mortgage Bank, United Capital, Africa Prudential and others. The rest of the year is expected to be dominated by primary market activities of banks and other companies raising funds to recapitalized their operations and businesses.

The NGX index’s action remains above the T-line and the two moving averages of 50-EMA and 50-SMA in the midst of changing market momentum and direction. Also, market players are looking forward to economic data and corporate earnings to reveal the state of economy and companies. Already, the month of June purchasing Managers Index shown a drop in business activities, as the index fell to 50.10 points from 52.10 points in May to reflect the impact of inflationary pressure on businesses. As economic reforms of the government through the fiscal and monetary policies are yet to put the nation’s economy on the path of recovery, due to continued mismatch of policies and implementation style in the face of oscillating oil production output and exchange market challenges.

With the half-year earnings reporting season draw closer, more companies like Dangote Sugar, Jaiz Bank, Transcorp, Africa Prudential, Ikeja Hotel, Transpower, Unilever, Livestock Feeds, CAP, among others have informed the market of their closed period and board meetings to approve the second quarter earnings report, in the face of more Annual General Meetings notifications. In similar manner, some other companies presented resolutions from their meetings, with the latest coming from Omatek Ventures, while Airtel Africa updated the market of its ongoing share buyback. In the midst of all these, it is safe for investors to target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the market signaled reversal as revealed by candlestick formation and mixed momentum indicators. As ADX inched up at 19.47, while RSI and Money Flow Index are down to read 59.61 and 64.82 points against the previous session 60.25 and 64.95points respectively. Market players should watch this current trend and trade wisely as reversal is underway in the face of funds slowing down in the market on positioning and profit taking. Also, trading volume pattern continued to oscillates, suggesting selloffs and buying interest in some sectors in the midst of wait and see attitude ahead of end of the quarter window dressing.

To navigate the rest of the quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday 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 oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil price on Monday closed higher and continues its oscillation to trade at $86.60 per barrel in the midst of summer demand expectation and supply fear. As mixed economic data and rate cuts by Fed continue to go front and back. Just as increasing geopolitical tension threats many economies even with the expect impact of rate cuts on the economic activities in the face of sticky inflation. This trend may likely continue in 2024, this up and down movement that drive volatility. As Middle East conflict and war in Ukraine continue to influence oil supply and demand.

Meanwhile, Monday’s trading started slightly in the upside but pulled back at midday to oscillate for the rest of the session on profit taking in major sectors of the market, a situation that pushed the NGX’s index to an intra-day low of 99,972.31bps from its highs of 100,094.50bps, before closing marginally below its opening level at 100,020.80bps.

Market technicals for the session were negative and mixed with lower volume when compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 40% buy position and 60% sell volume. The total transaction volume index stood at 0.54 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index  slide to read 64.82pts, from the previous day’s 64.95pts, indicating that funds left the market.

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Index and Market Caps

At the end of the session, the benchmark NGX All-Share Index shed 36.66 basis points to close at 100,020.83bps after opening at 100,057.49bps, representing a 0.04% drop. Market capitalization fell by N20.74bn, closing at N56.58tr from the previous day’s N56.60tr, which also represented a 0.04% value loss.

Attention: If you have not signed up for INVESTDATA’s buy and sell signal setup, don’t delay, because the number of stocks entering their oversold range has increased as market correction and pullbacks call for caution and positive chart patterns to be on our watchlist. These stocks have potentials to retrace, considering their earnings prospects and the oscillating moves in an upmarket and weak economy.

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The downturn was driven by profit taking and selloffs t in the shares of NB, Zenith Bank, Nascon, UBA, Etranzact and MRS Oil among others. This impacted mildly on Year-To-Date gain which inched down to 33.8%. Market capitalization YTD gain stood at N11.56tr, representing 38.32% above its opening level for the year.

Bearish Sector Indices

Sectoral performance indexes were down, safe for NGX Industrial goods index that closed flat, while NGX Insurance index led the decliners after losing 1.17%, followed by  Consumer goods, Banking  and Energy  with 0.11%, 0.08% and 0.01% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 28:19, while activities in volume and value were down after players exchanged 274.68 million shares worth N3.71bn. Volume was driven by trades in UCAP, Linkage Assurance, AIICO, CWG and Universal Insurance.

Linkage Assurance and Africa Prudential were the best performing stocks, gaining 10% and 9.76% respectively, closing at N1.10 and N9.00 per share respectively on dividend and sentiment. On the flip side, Etranzact and Fidson lost 10% and 9.70% respectively, closing at N4.50 and N13.50 per share, purely on profit taking.

Market Outlook

We expect mixed sentiments in the face of profit taking and  low valuation, as  portfolios repositioning continue, while taking advantage of pullbacks to buy into value.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

 Ambrose Omordion

CRO|Investdata Consulting Ltd