Expect Mixed Trend On Profit-Taking, Momentum Investing Amidst Pullback, Positioning
Market Update for November 10
It was a very volatile and mixed session on the Nigerian Exchange at the midweek, as profit-taking hit the market sharply to short-live the three consecutive days of positive outing on a low traded volume and slight negative breadth.
The negative sentiments and selloffs witnessed on Wednesday were due to mixed signal from global inflation and other happenings in the fixed income market that is yet to give a clear direction, as investors await the rates of TB primary auction after the long tenor of 364 days had earlier decline to 6.99% from 7.25%.
Technically, the NGX index’s action witnessed a slowdown in momentum that signal a distribution phase, which we need to confirm on Thursday and afterward, since the index had tested 44,068 after breaking out a major strong resistance level of 43,921.17 basis points and psychological line of 44,000 on an initial rally of MTN Nigeria, before pulling back on profit booking after recording three upbeat sessions. Also, momentum indicators like MACD, RSI, ADX reading 63.23, and money flow index looking flattish on a daily chart, recorded a slowdown, despite remaining strong and bullish. The possibility of a bull spike for the rest of the year and in 2022 is still high after the market had broken out its January peak level, with the expectation that it is likely to break out its 2018 resistance level of 45,921.17bps, which is possible if investors’ positive vibes return after profit-taking.
However, the better-than-expected Q3 earnings, interim corporate actions, while the level of liquidity in the equity space will determine the extent of the market rally when it rebounds from this pullback. Already too, all eyes are on happenings as regards the global inflation rates and oil prices currently oscillating around $84 per barrel; on the impact of the drop in oil consumption by China, as OPEC holds on to supply. So far, the direction of yields in the fixed income market remains unclear.
Meanwhile, midweek’s trading opened slightly on the downside, before rebounding at mid-mornings to oscillate powerfully for the rest of the session on profit-taking and selloffs in blue chips, a situation that pushed the NGX index to an intraday low of 43,685.97 basis points from its highs of 44,068.70bps before closing below its opening level at 43,242.15bps.
Market technicals for the session were weak and mixed with lower volume traded than the previous days in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiment Report showing 94% sell volume and 6% buy position. The total transaction volume index stood at 0.68 points, just as momentum behind the day’s performance remains relatively strong, Money Flow Index looked up marginally at 71.65 points, from the previous day’s 71.27 points, indicating that funds entered the market.
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Index and Mkt Cap Movement
At the end of midweek’s trading, the composite NGX All-Share index shed 23.25 basis points, closing at 43,707.30bps after opening at 43,730.53bps, representing a 0.05% drop, just as market capitalization fell by N12.13bn, closing at N22.81tr, from the opening value of N22.82tr, also representing 0.05% depreciation in value.
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The day’s downturn was driven by selloffs and profit-taking in stocks like Lafarge Africa, NGX Group, Zenith Bank, UACN, UBA, Ardova, and Redstar Express, among others, which impacted mildly on Year-To-Date gain, that reduced to 8.53%. Market capitalization stood at N1.74tr YTD, representing an 8.10% growth from the year’s opening value.
Sectoral performance indexes were down, except for the NGX Consumer goods index which closed 0.12% higher, while the NGX Banking index led the decliners after losing 0.97%, followed by Insurance, Industrial Goods, and Energy with 0.34%, 0.25%, and 0.24% respectively.
Market breadth turned slightly negative, as losers outnumbered gainers in the ratio of 19:18, while transactions in volume and value terms were mixed after players exchanged 270.70m shares worth N5.63bn, compared to the previous day’s 280.71m units valued at N3.48bn. Volume was boosted by trades in Flour Mills, Transcorp, FBNH, ETI, and GTCO.
Neimeth Pharm and Chams were the best-performing stocks after gaining 10% and 9.09%, closing at N1.98 and N0.24per share respectively on market forces. On the flip side, Redstar Express and Pharmdeko lost 9.86% and 9.83% respectively, closing at N3.29 and N2.11 per share purely on profit-taking.
We expect the mixed trend on profit-taking and momentum investing as pullback creates an opportunity for players to jump into positions on the strength of Q3 numbers, just as candlestick formation and volume traded at the end of day trading revealed sellers in control as the index slide down marginally. Also, we note that institutional players are not selling but positioning in blue-chip companies, as the pullback was on a light volume. It is equally noteworthy that this pullback at this level is for the accumulation of more positions ahead of year-end seasonality. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.
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