Expect Mixed Trend On Bargain Hunting, Profit Taking, Amid Pullbacks In Value Stocks
Market Update for June 23
The Nigerian stock market on Thursday maintained its bullish mood for the third successive trading session on the back of bargain hunters betting on oversold growth and value stocks that pushed the NGX All-Share Index higher, on a low traded volume and negative market breadth. The mixed sentiment and momentum followed the buy interest and selloffs across the major sectors of the market as the financial services and energy sectors witnessing position taking, as consumer goods had a selloff to close the session lower.
Stocks are fantastic financial instruments to trade if you understand timing and season the use of dates and technical tools to guide your entry and exit strategies. When it comes to trading, there are different thinking among players, as stocks are classified into dividend-paying, growth, and value stocks, among others. This helps you understand what is happening in each sector and how such will influence company performances positively or otherwise, because equity prices feed on company earnings. Also, you look at market cap to know where a company, or stocks belong, whether large, medium and low cap, to help you evaluate each, because stocks can be cheap and expensive at different phases of the market.
The new market rally still seeks direction and confirmation at this stage, which is why the three trading sessions of upmarket is good news for players, only until a breakout of 51,804.21 basis points level is confirmed. The NGX index is trading near a buy point, because buying interests have improved from the previous sessions to signal another rally is underway as end of quarter and earnings season draw closer. Also, bargain hunters are taking advantage of market pullback to accumulate positions in stocks that recently suffered losses especially the interim dividend paying companies.
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Oil prices continued to oscillate in the international market, even as it trades at $109.9 per barrel, as fear of global recession grows, even as the US economy for the first time since 1976 is set to outgrow China which has been slowed down by its zero COVID strategy, thereby impacting the demand for oil. This has been helped also by the discovery of new rigs in the US, just as the EU plans to cap gas prices in the midst of the embargo placed on the importation of Russian oil. There is a palpable worry that these chronic high energy prices continue killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook. This is also influencing the monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. Nonetheless, Nigeria’s soaring inflation is a potent threat to its fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing to the equity space in no distant time as institutional investors balance their portfolios.
Technically, the NGX index action looks good at the current rebound but needs to breakout the ‘T-Line’ and 20-day moving average to confirm strong strength behind the new move, as the market remains relatively strong, since the beginning of the week. The strong resistance level has been within the 51,804bps region, while volatility persists and corrects towards the next breakout is sported around 51,740.21bps. Should the index break this point, the next visible resistance is 51,847.43bps.
The possibility of the trend being sustained is high and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market. This, they can do by effectively using your stop-loss and trading your plans always by allowing your entry and exit strategies to guide you.
Thursday’s trading started slightly on the downside and oscillated to rebound at midday before extending its gains on bargain hunting in financial, telecoms stocks and other blue-chip companies. This pushed the NGX’s index to an intraday high of 51,740.21bps from its lows of 51,375.06ps before closing above its opening points at 51,618.75bps.
Market technicals were mixed and weak, as volume traded was marginally lower than the previous day in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 67% buy position and 33% sell volume. The total transaction volume index stood at 0.68 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking up at 43.77pts, from the previous day’s 37.55pts, indicating that funds entered the market.
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Index and Market Caps
At the end of Thursday’s trading, the benchmark NGX All Share index gained 285.46bps, closing at 51,618.73bps, after opening at 51,377.21bps, representing a 0.47% growth. Similarly, market capitalization rose by N130.21bn, closing at N27.83tr, from the previous day’s N27.70tr, which also represented a 0.47% value gain.
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Meanwhile, the session’s upturn was driven by buying interests in FBNH, MTNN, ETI, Oando, Fidelity Bank, UBN, Livestock Feeds and Ardova, among others. This impacted positively on Year-To-Date gain, rising to 20.84%, while market capitalization growth stood at N4.93tr YTD, representing a 24.56% rise over the opening level for the year.
Bullish Sector Indices
Performance indexes across sectors were mixed, as NGX Insurance, Energy and Banking closed higher with 0.73%, 0.53% and 0.15% respectively, while NGX Consumer goods was down by 0.34%. Just as NGX Industrial goods closed flat for the day.
Market breadth turned negative, as losers outnumbered gainers in the ratio of 22:18; just as activities in volume and value terms were down, after investors traded 223.25m shares worth N2.86bn, with volume driven by trades in Mutual Benefits Assurance, Oando, FCMB, Accesscorp and FBN Holding.
FBN Holding and FTN Cocoa were the best-performing stocks, gaining 9.78% and 9.38%, closing at N10.10 and N0.35 per share respectively on market forces and Q2 earning expectation. On the flip side, Ellah Lakes and Academy Press lost 10%, closing at N3.96 and N1.17 per share, on profit taking and selloffs.
Being the last trading day of the week, we expect mixed trend on bargain hunting and profit taking, as players take advantage of pullbacks in value stocks ahead of quarter-end window dressing and interim dividend season to reposition, while some March year-end audited accounts companies hit the market any moment from now. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and earnings forecast released so far. Analysts are also expecting the inflation report to support recovery in the new July amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.
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