Expect Mixed Trend On Profit Taking, Declining Yields In Fixed Income Market Space

Market Update for December 15

The nation’s equity market on Thursday extended the motive wave three on buying power and strong momentum, as the key performance NGX All Share index closed higher on a very high traded volume and positive market breadth to breakout another psychological line of 49,000 on a new uptrend and increase in flow of funds into dividend paying stocks.

Also, the consumer price index for November came as expected, with inflation heightening by 38 basis points to settle at 21.47%, against 21.09% recorded in October. This hike was largely driven by imported cost due to depreciation in the value of the Naira, increase in the cost of energy/fuel and production at all levels, including transportation. Also, we noted there was a reversal in the two consecutive months of decline, as November grew by 1.39% from 1.24% recorded the month before as a result of increase in consumption in preparation of festive season.

In a situation where there is changing yield environment as revealed by the recent TB primary market auction rates and yield suffered a further decline across all tenors to 5.5%, 7.3% and 9.89% for the 91, 182 and 364-day periods respectively. This may likely trigger return of funds into the equity space, and may be fueling the ongoing uptrend and recovery, especially for high dividend paying companies with strong earnings.

The buying sentiment became stronger among some high, medium and low cap stocks that had posted positive earnings which supported the value that is attracting buy interest in the equity space by discerning investors and technical traders, especially as the primary trend of recovery remains intact ahead of year-end expectations. The NGX index action has now crossed the 200-Day Moving Average confirming strong strength in the market rally.   Already, we have noticed position taking across the major sector of the market at the end of the day trading.

NGX index sustained its strong momentum due to the prevailing high dividend yields in the stock market and shorter time frame to achieve similar returns with possibility of capital gains. With the ongoing Santa Claus rally and expected year-end window dressing by fund managers, and listed companies who desire to close the year higher.

The oscillating volume pattern in the face of the expected closed period notification and 2023 corporate actions, just as position taking continues ahead of the full-year earnings season, while bargain hunters and speculators take advantage of any pullback or selloffs to buy low amid a high volatility. Therefore, investors should target companies with a consistent track record of dividend payment with strong fundamentals and growth prospect that will support further price and payout.

Technically, the market is now in markup phase, and new uptrend after forming a cup and handle chart pattern on a daily and weekly time frame.  But there is a divergent between the index action and MACD which also support pullback, so let us eye our gaze on market forces.  The momentum indicators appear strong, as the ADX read 51.74 at the end of the day, just as, RSI and Money Flow Index are looking up to read 77.90 and 88.47 points against the previous session 77.90 and 87.78 points respectively.

The continuation of this uptrend depends largely on the interplay of market forces and inflow of funds into market as trading open this last yarding day of the week. The volume traded pattern suggests the gradual return of many players who had been seating on the fence before now, including institutional investors holding cash to confirm the primary’s market direction, especially given the anticipated financial market reset in 2023, and beyond expected to create wealth for action takers are underway.

To navigate the rest of the year 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.”

Oil price oscillation continued, as it trades at $80.98 per barrel on traders selling their position in unclear increasing cases of Covid 19 in China and its restriction in the midst of geopolitical tension and fear of recession as a result of high interest rate and inflation across the globe. Also, supply tightened due to the Russia-Ukraine war that has been lingering. The up and down movement of oil price also continues to drive volatility.

Meanwhile, Thursday trading started in the green, which was sustained for rest of the session, despite oscillating on profit and position taking across all class of stocks, a situation that pushed the NGX’s index to an intraday high of 49,249.96bps from its lows of 48,979.10bps before closing above its opening level at 49,233.02bps.

Market technicals were strong and positive, with higher volume of trade than the previous session in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 94% buy position and 6% sell volume. The total transaction volume index stood at 1.25 points, just as impetus behind the day’s performance was strong as Money Flow Index looked up at 88.47pts, from the previous day’s 87.78pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGXASI, at the end of Thursday trading gained 244.98bps, closing at 49,233.02bps after opening at 48,988.04bps, representing a 0.50% growth, just as market capitalization rose by N133.43bn closing at N26.82tr from the previous day’s N26.68tr, which also represented a 0.50% value gain.

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Thursday’s upturn was driven by demand for the shares of MTNN, Stanbic IBTC, CAP, Ardova, Cadbury, Learn Africa, Neimeth , Cornerstone  and Wapic among others, which impacted positively on Year-To-Date gain, increasing it to 15.26%. Market capitalization gain YTD increased slightly to N4.32tr, representing 20.27% rise over the opening level for the year.

Bullish Sector Indices

All the sectorial performance indexes for the session were in green, led by NGX Insurance after gaining 1.07%, followed by banking, energy, consumer and industrial goods with 0.72%, 0.62%, 0.15% and 0.13% respectively.

Market breadth was positive as gainers outnumbered loser in the ratio of 20:7; just as transactions in volume and value were up, after players traded just 222.78m shares worth N2.13bn. Volume was driven by trades in Sterling Bank, GTCO, Zenith Bank. FBNH and UBA,

Chemical Allied Products and Ardova were the best performing stocks, after gaining 9.88% and 9.51%, closing at N17.80 and N16.70per share respectively on market forces. On the flip side, Geregu Power and Chams lost 8.11% and 4.35% respectively, closing at N102.00 and N0.22per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed  trend on profit taking and declining yields in fixed income market space as  positioning by bargain hunters continue ahead of year end seasonality in the face of election uncertainty, as pullbacks add more strength to upside potential, so investors should take advantage of price correction ahead of year end seasonality. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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